Financial Services, Latvia, Taxation, Wages

This is an initial proposal that may change during discussions with the social partners.

The government's action plan stipulates that the Finance Ministry has to develop medium-term guidelines for national tax policy by May 31. The purpose is to support improvement of people's quality of life, growth of the national economy and international competitiveness.

At the moment, a 12% VAT rate applies to medicines, and the government has been proposed to reduce the rate to 5%. This means that the budget revenue will decrease by EUR 25 mln to EUR 30 mln as a result.

The reduced VAT rate on newspapers is 12% at the moment. If the latest proposal is approved, the tax rate on newspapers published in the European Union will be cut to 5%, while the tax rate for other newspapers will increase to 21%. Budget revenue will decrease by EUR 2 mln as a result.

It has also been proposed to cut the VAT rate on books to 5% and on electronic books to 12%. The negative fiscal effect is estimated at about EUR 1.34 mln.

According to the proposal, reduced VAT rates will no longer apply to cultural services provided by state and municipal institutions, and these services will be charged a 21% VAT. Budge revenue will therefore increase EUR 2.1 mln.

Restaurant services are currently applied a standard VAT rate of 21%, and it has been proposed to apply restaurant services a reduced VAT rate of 12%, as a result of which budget revenue will decrease by EUR 25 mln to EUR 30 mln.

A number of food products - fresh meat and fish, bread and cereals, milk, cheese, cottage cheese, sour cream and eggs - are currently applied a 21% VAT rate, and it has been proposed to cut the VAT rate to 5% for these products. As a result, budget deficit will decrease by EUR 60 mln to EUR 70 mln annually.