Budget, Financial Services, Latvia, Legislation, Markets and Companies, Taxation

Valdis Dombrovskis.

The budget was structured in tough negotiations with the international lenders and coalition partners, and the government had no choice but consolidate the budget by LVL 500 million, said Dombrovskis.

Judging from Dobmrovskis' statement, the frequent changes in the government's stance was due to the complicated talks with the international donors. Dombrovskis also said that the progressive property tax rates could have been higher, however, this was impossible to achieve due to objections raised by the People's Party.

Dombrovskis also said that the 2010 budget bill has been agreed upon at the technical level with the international lenders. Nevertheless, the final decision of the international lenders could only be known after the review mission arrives in Latvia, which will be only after Saeima passes the budget.

As reported, the Cabinet of Ministers agreed at an emergency meeting today that personal income tax rate will be increased from 23% to 26%, however, the government decided not to apply a 25% income tax to those enterprises that earn more than LVL 5 million a year, as the Finance Ministry's representative Aleksis Jarockis told LETA.

This means that the current income tax rate of 15% will remain unchanged for all enterprises.

The government also agreed today that speculative property deals will be applied a 15% personal income tax, whereas income from dividends will be applied a 10% tax.

Tomorrow, November 24, the government will be meeting again to approve technical and corrective amendments to excise tax on natural gas and the property tax.

As reported earlier, in emergency session on Friday, the government came to agreement on additional tax hikes in order to cover the needed LVL 57.4 million in the 2010 national budget.

Today the government is meeting again to nail down the proposed amendments.

Besides the higher personal income tax rate, a progressive real estate property tax will be introduced: a 0.1% rate for property worth up to LVL 40,000, 0.2% for property valued at LVL 40,001-75,000, 0.3% – LVL 75,000 and more. This is expected to pad the revenue column with LVL 500,000.

The annual duty for motor vehicles will be increased, for an additional LVL 15 million.

Capital gains will look at a 15% tax rate, which is hoped to bring in an extra LVL 2.6 million in the budget.

In mid-2010, there will be a new tax for natural gas used for heating purposes to supplement the budget with another LVL 5 million.