Fiscal Council: the impact of the tax reform should be carefully assessed  30 March 2017

The Fiscal Discipline Council, in cooperation with the European Commission Representation in Latvia, is organising an expert discussion on the tax policy reform proposed by the Ministry of Finance. The purpose of the discussion is to consider whether the implementation of the reforms proposed by the Ministry of Finance will ensure the achievement of tax revenue targets.

Jānis Platais, Chairman of the Council, stresses that it is very important to determine whether the proposed reforms will ensure the achievement of the government's tax revenue targets. The Ministry of Finance and the Bank of Latvia have proposed reform measures for the tax system to increase the pace of economic growth and stimulate the involvement of people who are currently either working in the shadow economy or are not economically active. It is crucial to establish whether the reform measures will result in the government's intended tax-to-GDP ratio of 1/3. These additional revenues will be required to improve the quality and availability of public services, argues Jānis Platais.

The Chairman also notes several risks that may have a negative impact on the state budget balance. Specifically, the lack of compensating measures for the reduction of the personal income tax rate and levying a 0% tax rate on reinvested profit are a cause for concern.

Even though these measures may reduce the shadow economy and stimulate entrepreneurial activity, the Council is concerned that these changes may significantly reduce the ratio of budget revenues. The tax reform should not increase the deficit and, consequently, public debt, stresses Jānis Platais.

The list of participants includes representatives from the Ministry of Finance, the European Commission, the Ministry of Economics, employers (incl. commercial banks) and employees. The discussion will consider the impact of the tax policy reform on competitiveness, the business environment, inequality and the state budget balance.

The discussion was in Riga (Aspazijas bulvāris 28). Presentation materials & video (in Latvian) are available here.