FM regularly analyzes and informs the public about tax incentives

Referring to the audit carried out by the State Audit Office on tax rebates, we inform that the Ministry of Finance (MoF) has been developing and publishing a report on tax incentives since 2014 on a regular basis. It aims to raise public awareness of tax incentives, their size, their purpose, and their impact on budget revenue.

In addition, before the National Tax Policy Guidelines 2018-2021. The World Bank was involved in the elaboration of the 2005-2010 year, which carried out an independent assessment of the Latvian tax system, including tax relief. Working groups set up by the largest taxpayers in Latvia, industry associations, government social and cooperation partners, as well as experts from the World Bank, the European Commission, the Bank of Latvia and the Organization for Economic Co-operation and Development were also discussed in the working groups established for the development of the State Tax Policy Guidelines. their review options. Therefore, the change of tax relief within the framework of the reform is not a single decision of the MoF, but a decision taken jointly with the line ministries, experts and social and cooperation partners of the government.

The MoF assesses that the State Audit Office has taken into account our objections to the audit report and has supplemented it with our comments. However, there are still reservations about some of the audit findings, such as the fact that the MoF has not assessed the impact of tax breaks on reducing income inequality.

The FM regularly analyzes the tax burden on labor and its impact on reducing income inequality, which is characterized by a tax gap indicator [1] . In 2018, the reduction of the tax burden or the tax gap was partly limited by the changes accepted by the Government and supported by the Saeima, which provided for the increase of the state social insurance compulsory contribution rate in order to ensure the increase of the financing of the health sector and to limit the budget deficit. Nonetheless, the tax burden on low-income workers for the first time in the last decade will be below 40% and, compared to 2017, will be reduced by about three percentage points, which, in the context of the European Union, can be seen as a major change.

It should be noted that there is a historically established practice of not defining specific performance indicators for tax relief, but drafting a preliminary impact assessment report (annotation) in any legislative act. In addition, on the suggestion of the MoF, the use of time-limited preferences as well as more precise outcomes and objectives (eg the Value Added Tax Act for reduced rates for fresh fruit and vegetables) are more widely used when adopting new legislative initiatives.

 

When elaborating the tax policy guidelines for the next period, the MoF plans to include in it, in cooperation with sectoral ministries, a specific action plan with deadlines for defining objectives and indicators to be achieved for all tax incentives.

The MoF also plans to coordinate and advise the ministries of the sector on the assessment of the effectiveness of tax incentives. Meanwhile, the Ministry of Industry expects the MoF to evaluate all available financing for the sector, ie not only available tax incentives, but also other state aids granted (grants, direct payments, grants, scholarships, etc.).

[1] Taxes on labor consist of a set of taxes and charges, comprising both the employer's and the employee's statutory social security contributions (hereinafter - SSGI) and the personal income tax (hereinafter - PIT), taking into account the non-taxable minimum and the tax credit for dependents. as well as additional tax relief and certain eligible costs.

While the tax gap or wedge (tax wedge) - is characterized by the difference between the worker's net income and the importance of this labor is paid by the employer. It is calculated as the percentage of labor taxes (PIT and employee and employer SSAOI) against wages before all taxes and the employer's SSAOI.

 

 

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