Analytics, Economics, EU – Baltic States, Financial Services, Latvia, Taxation

EC, WB and IMF experts point out that, by raising the monthly non-taxable minimum, social inequality and unemployment will reduce faster in Latvia.

Experts' opinions must always be taken with a grain of salt. However, in this case, all experts agree that the most efficient way is to focus on the monthly non-taxable minimum and tax breaks for dependants, explained Dombrovskis.

"Of course, we are working on reducing the labor tax and we are not backing down from these plans. However, if there are many opinions from experts indicating that, from the point of view of social inequality and unemployment, another approach is more efficient, it must at least be discussed by the coalition," said the prime minister.

As reported, on May 24, 2012, Saeima almost unanimously voted for amendments to the Law on Personal Income Tax.

According to the amendments, the personal income tax rate was reduced from 25% now to 24% this year.

The amendments also stipulate that the personal income tax rate will be reduced to 22% in 2014 and 20% in 2015.

The goal is to ensure that labor taxes in Latvia are similar to those in Estonia and Lithuania, the lower taxes are also hoped to reduce poverty and structural unemployment risks, as well as tax evasion.

Welfare Minister Ilze Vinkele (Unity) said in an interview with Latvian State Radio on May 22 that reducing personal income tax two percentage points next year is debatable, because it would mostly favor those who receive high salaries. The "absolute priority" of Vinkele and Finance Minister Andris Vilks (Unity) will be increasing non-taxable minimum income and tax breaks for dependants, because these are the instruments that could reduce poverty and inequality in Latvia, said Vinkele.