Financial Services, Latvia, Legislation, Taxation

Dombrovskis explained in a radio interview today that there were two options for altering the personal income tax. The first was to retain the personal income tax rate at the previous level and to lower the non-taxable minimum income and tax breaks for persons with dependants. International lenders objected against this option, therefore the government chose the alternative, to increase personal income tax to 26%, writes LETA.

The head of the government explained that any of the two alternatives would be more advantageous for some and less so for others. Higher personal income tax means that the tax-exempt minimum income and tax breaks for persons with dependants can stay at the previous level, therefore families on lower income and persons with dependents will suffer less.

In Dombrovskis' view, a higher personal income tax will not be detrimental to the middle class in Latvia.

The prime minister is also confident that the concerns about the social budget running out of money in the coming years are unfounded. Dombrovskis admits that in the coming years the social budget will have a deficit, but this has been taken into consideration in drawing up the national budget plan and will not result in a social catastrophe.

As reported, the Cabinet of Ministers agreed at an emergency meeting earlier this week 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.

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

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