Latvian Stevedoring Company Association (LSA) comments that the tax policy proposals suggested by the Ministry of Finance and approved by the government for 2024-2026 on the 26th of September and 2023 are based on tax increases that will reduce economic activity and lead to the complete destruction of the sea port sector.
LSA invites the new government to think about the development of Latvia’s national economy and sea ports instead of increasing the excise tax five-fold.
LSA, which represents the businesses operating from Latvian sea ports, stresses that there has been no consultation or exchange of information with the industry on the planned increase in excise duty rates on diesel, fuel oil and kerosene used by Special Economic Zones (SEZs) and Freeports. After studying the proposals supported by the government, LSA concluded that the impact on the economic activities of enterprises operating in the SEZs and free ports was not assessed and the information report submitted to the Cabinet of Ministers is blatantly false and misleading.
First of all, when planning the doubling of excise duty rates in 2024 and their increase by 500% in 2026, the government did not assess the situation in the port sector.
LSA stresses that due to the geopolitical situation and sanctions, as well as the increase in costs of energy resources, port fees, infrastructure tariffs, etc., the industry is already going through a very difficult period, so the planned leap of expenses will be critical for the port industry and will basically mean its destruction. In this situation LSA is no longer pointing towards a drop in competitiveness. The organisation points out the risks to the survival of many companies and, consequently, and the continued operations of freeport administrations.
Secondly, between 2024 and 2026, it will be impossible to abandon the use of fossil fuels and switch to renewable electricity production facilities within the territories of freeports and SEZs. The LSA emphasizes that equipment that could potentially meet the objectives of the green course is currently in development. If this kind of equipment becomes available on the market in two to four years only, green fuel (green hydrogen, bio-methane), which are 100% produced in Latvia using renewable resources, will still not be available in industrial volumes in those years.
Respectively, even if technologies were available, their price would be significantly higher and without a support mechanism, similarly to what happened with the introduction of the electric car, no transition from fossil fuels to more “green fuel types” will be possible. Without an appropriate state support mechanism, raising taxes would be a “whip” that will impact economic operations even more and will likely lead many businesses on the brink of bankruptcy, experts stress.
Thirdly, entrepreneurs have plan their investments on the basis of the conditions regulated by laws and regulations that govern operations of free ports and SEZs. Changing the tax policy will reduce investment returns, which will have a negative impact on investments, because business operations in such territories is limited within lease contracts.
“Fourthly, we cannot understand the government’s approved policy in regards to freeports and SEZs. The informative report submitted to the Cabinet of Ministers mentions that raising the excise tax rates will cause a distortion of competition between businesses operating from freeports that hold free economic zone status and the companies that do not have such a status.”
In this regard LSA asks the government to provide a clear political vision for special economic zones,
because by reducing the attractiveness of offers, the government will basically make such a status pointless. This means no more investments.
LSA categorically objects to the decisions that negatively impact economic activity and suggests studying the importance of sea ports for Latvia’s national economy. These decisions not only affect port-based businesses, they also directly impact the flagships of Latvian exports. The logging and processing industry and agriculture sector are important customers of ports, and with the current situation in the economy, when every euro earned from exports is important, the country should not toy around with the foundations of the Latvian economy in this way.
LSA stresses that the promised dialogue with industry businesses remains insufficient. The organisation invites the government to not rush with increases in taxes, fees, other costs. Such decisions made without any consultation with the industry will not contribute in any way to the sustainable development of Latvia, but will instead lead to the complete destruction of the port sector, which is highly important for the country’s economy and national security.
Also read: OPINION | Kazakhstan’s importance on a rise for global and Latvian economy