Immediately after approval of the state budget for 2023, the ruling coalition in Latvia plans to start working on the tax policy guidelines, said Minister of Finance Arvils Ašeradens in an expanded interview.
Parties forming the government have an agreement to review tax guidelines once a political cycle. The general agreement is to change one or two tax systems and announce changes to businesses in good time.
The biggest changes could come into play in 2025.
Ašeradens explains that during the government formation process parties reached the conclusion that partners of the coalition have different opinions in regards to the tax policy and various tax rate changes. The minister said the international tax index indicates that Estonia and Latvia are in first and second place respectively when it comes to tax competitiveness.
«We agreed during government formation talks that stability of the tax system is a very important element of the tax environment, and the practice when the government steers in one direction or the other every year is not very good. We agreed to review tax guidelines once every political cycle. We made the decision to change one tax system or the other. It will be announced to businesses in a timely fashion. The process has commenced, and the plan is to tackle tax guidelines after the budget. Changes are planned to be passed before the end of the year,» said Ašeradens.
When asked if this means tax changes starting next year, Ašeradens said he would be happy to say «no»,
but he is also worried about a number of tax positions.
For example, some parties are very worried about taxes on luxury cars, as the peak threshold at which luxurious car dealership starts has remained unchanged for a long time. Ašeradens explained this tax will be evaluated, adding there are multiple other taxes that could be reviewed.
«I believe it would be best if the biggest tax changes come around the year 2025, because by then we will have discussed changes with businesses and residents. There is also enough time to approve necessary legislation and perform other tasks,» said Ašeradens. When asked if this means the Saeima could change taxes once every term, the minister explained this is in the hands of parties forming the government.
«My goal is approving tax changes together with the state budget for 2025, to make sure all of the potential changes are well known to all in advance. I believe shaking tax rates would be incorrect, even though there are parties in the coalition that believe excise tax rates should be increased more rapidly. The state budget for 2024 may come with slight tax changes. Major tax changes may come in 2025,» said Ašeradens.
When asked if changes could affect «big» taxes (VAT, labour tax, PIT, corporate income tax), the minister said he is very reluctant to comment.
«I don’t want to cause unnecessary alarm in society before holding political discussions. We’ve had discussions about the tax policy, and our social partners have voiced a position with which I lean to agree, specifically the macroeconomic scenario to help develop Latvia’s economy in the future. It should be formulated first, so that we have sources of growth – whether we bet on industrial policy, or innovative policy, or green policy… There are many aspects and there is no social agreement we can steer towards at the moment. This topic is on the table, and we are serious about going through it in order to secure some kind of agreement. We have to reach an agreement which development direction Latvia’s economy will go in the coming years. The tax policy should support this growth,» said Ašeradens.
When asked when this discussion is planned to star and end, Ašeradens said
discussions regarding the tax policy could be concluded around the end of November.
Then tax changes and the rate at which the country moves forward will become clear. Major tax changes, if any appear, will come in 2025, said the minister.
Ašeradens admits each tax position has certain lasting problems that require evaluation. For example, the corporate income tax policy is four years late for its review, and it desperately needs evaluation.
Also read: Latvia’s PM says changing taxes this year would be completely unfair