On Tuesday, the 14th of November, Saeima’s Economic, Agricultural, Environmental and Regional Policy Committee decided not to support amendments to the Law on the Application of Taxes in Free Ports and Special Economic Zones included in the budget legislative draft package.
These amendments were intended to expand the range of recipients of petroleum products with excise duty reliefs in free ports and special economic zones (SEZ).
[BNN comment. According to port-based businesses, these amendments serve to “cover up” the planned doubling of excise tax rates for diesel fuel, fuel oil and petroleum used by SEZ and freeports in 2024 and their increase by 500% in 2026.]
The committee decided to prepare a letter on the Budget and Finance Committee responsible for the legislative draft. In it, it is explained that when developing it, the Ministry of Finance had no discussions with the sector. It is also added that the ministry’s and the sector’s fiscal estimates do not match.
Latvian Stevedoring Company Association (LSA) council member Jānis Kasalis told the committee that the sector is against the decision to raise the tax rate for freeports and SEZ. He stressed: there were no consultations or exchange of information with the sector about the planned increase of excise tax rates for diesel fuel, fuel oil and petroleum used by SEZ and freeports.
The association concluded that the government did not assess the influence on economic operations of businesses operating from SEZs and freeports. Kasalis explained that the sector and LSA propose rejecting amendments prepared by the Ministry of Finance and sitting down to discuss the situation with representatives of the sector.
Deputy Director of the Department of Customs and Excise Tax Division of the Ministry of Finance Jolanta Krastiņa explained during the meeting with the committee that amendments were developed in order to expand the range of recipients of excise tax reliefs and prevent distortion of competition on the market. Krastiņa also stressed that in Estonia and Lithuania there are no such reliefs applied to businesses operating from freepots and SEZs.
Kasalis countered this by saying that
businesses in Lithuania and Estonia operate under a different regime
– in these countries investments into port infrastructure are performed by port authorities using state funding. In Latvia, however, investments into port infrastructure are performed by businesses.
Krastiņa turned Saeima deputies’ attention towards the fact that application of a reduced tax rate risks landing Latvia a violation procedure from the European Commission. “For years this reduced rate was applied. Thankfully, no one noticed it. All it takes is for someone to complain for the EC to commence a violation procedure,” said Krastiņa.
The draft provides for the extension of reliefs to businesses that do not have the status of a free zone, but who are engaged in cargo-handling services in free port territories.
Because there are businesses operating from freeports that have a free zone status and businesses that do not, this results in unfair competition. Businesses that operate with cargo-handling services within Freeport territories and which do not have free zone status have to use petrol products with a standard excise tax rate.
The aforementioned amendments are intended to expand the range of excise tax relieve recipients to prevent distortion of competition among freeport-based companies. Considering this, in order to compensate a drop in excise tax revenue, amendments to the Law on Excise Duties provide for a gradual increase of the excise tax rate to ensure the fiscal influence in 2024 is neutral. This will promote use of renewable energy resources, including electricity within freeport and SEZ territories, as well as reduce the use of fossil fuels.
Also read: Latvian Employers’ Confederation sharply criticises government’s tax policy
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