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

After the LCCI urged businessmen to turn to the Constitutional Court to have the solidarity tax abolished, 20 private individuals and nine companies have responded by turning to the Constitutional Court, claiming that they have to be compensated what they have overpaid in solidarity tax, and demanding that the tax be lifted.

The claim is based on the argument that the solidarity tax goes against earlier strategies included in the government declaration, as well as several official documents that the government has ignored, said the LCCI head Janis Endzins.

"The introduction of the solidarity tax goes against Latvia's international commitments regarding the prevention of double taxation, which in turn hinders attraction of foreign investment and shows Latvia in a bad light - as a country unprepared for international cooperation and a country indifferent about its reputation and image," said Endzins.

The LCCI points out that there are very few people in Latvia who are paid large salaries, and not only pay more money in taxes than other people, but also are far more solvent, thereby contributing to the entire nation's welfare.

"Those who earn more usually also spend more money, thereby stimulating the economy and wage growth. We have to strive to have more people who are paid such large salaries," said Endzins.

The LCCI also points out that the preamble to the law offers no estimates of losses the state and local governments will entail as employers - only estimates of the additional budget income the solidarity tax will generate.

"We warned politicians against such a shortsighted action, as introducing new taxes on labor is plain stupid, but they did not want to hear our reasons. What we already know is that the number of people who should pay solidarity tax has reduced by 30 percent, which means that the solidarity tax income projection will not be attained," said Endzins, adding that, as a result of solidarity tax, a number of senior experts may leave Latvia and find jobs in other countries.

As reported, the much-criticized tax on high salaries, or the so-called solidarity tax, came into effect on January 1. The solidarity tax is levied on the part of highly-paid employees' salaries exceeding the ceiling for mandatory social security contributions.

In 2015, the ceiling was EUR 48,600 a year or slightly more than EUR 4,000 a month. According to estimates based on last year's data, the new tax applies to some 4,700 working-age people in Latvia.