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Further tax hikes would therefore hamper Latvia's economic growth and undermine competitiveness.

"Although on the one hand, the amount of taxes collected in Latvia is among the lowest in the EU, the tax burden on law-abiding taxpayers is high in Latvia, so further tax increases would hamper economic growth and weaken businesses' competitiveness," Rutkaste said.

The central bank's representative noted that the tax burden on labor, for instance, is excessive and should be eased in the future.

In order to increase budget revenue, Latvia should keep working to reduce its shadow economy and enhance tax collection instead of raising taxes. Also on the expenditure side of the budget, audits are needed to find more effective ways of using resources, Rutkaste said.

"We should also increase the tax system's transparency and stability, leaving tax rates unchanged during at least one election cycle," the Bank of Latvia representative said.

The head of the central bank's Monetary Policy Department also indicated that since 2012 rates have changed practically in all key tax categories, which makes business planning more difficult and the business environment unpredictable. As a result, entrepreneurs find it harder to take decisions on investing, Rutkaste said.