The tax reform provides for a major increase of labor costs for small employers. In accordance with Finance Ministry’s offer, these companies will have to find more than EUR 13 million to, at the very least, maintain their business activities, Latvian Traders Association comments on the situation.
Authors of the tax reform, on the other hand, declare that its objective is making business activities easier, especially in regions (where the majority of small businesses is located), the association’s representatives say.
LTA council member, businessman Raimonds Nipers believes the tax reform in relation to tax burden decline by 3-6% is laughable, considering the tax gap for employees with wages of EUR 800, compared with Latvian immigrants’ favourite destination – UK – is nearly 400% (to be paid EUR 1,000 on hands in the UK, it is necessary to pay EUR 198 in taxes, whereas in Latvia people have to pay EUR 769 in taxes for the same amount).
“The size of minimal wages is a problem for employment in regions. Employees who are paid minimum wages are not provided with minimum subsistence level. And so people don’t have the motivation to work,” LTA explains.
Finance Ministry offers increasing minimum wage level in Latvia to EUR 430 in 2018, making it so that employees receive EUR 367 after taxes and total minimum wage costs reach EUR 532. For small companies with a dozen employees, annual wage increase will cost around EUR 7,500. According to data from Lursoft, only 6% of small and medium-sized companies had profits this year. 23% or 175,000 employed people in Latvia are paid minimum wages. People employed in regions are paid the lowest wages. Increasing minimum wages would liquidate around 20,000 small and medium-sized companies, leaving nearly 60,000 unemployed, representatives of the association explain the situation.
“The government should overcome the “self-saving syndrome” in state administration and start resolving two problems associated with the tax reform. First of all, perform major structural reforms in the public sector, where the number of employed people had already exceeded 250,000 in 2015,” LTA notes.
According to Nipers: “Basically the entire tax mass is generated by only 360,000 employed people. The size of taxes continues relieving Latvia’s territory of residents. Secondly, it is necessary to reach an agreement in regards to the division of PIT to ensure the option to reduce costs for small wage recipients.”
LTA notes that the only thing left to do is conclude that the current tax reform changes are aimed at creating additional costs to smaller businesses, thereby ensuring the liquidation of more than 20,000 businesses or increase of their service prices. This would open the way for global traders and worsen the competitiveness of local traders.
“The total costs of Finance Ministry’s reform are close to a fantastic EUR 100 million. It should be said, however, that the proportion of large companies in tax payments is two times below that of smaller companies (6% as opposed to 11-12%). In its 2014 report on the fight against poverty and protection of human rights, the UN concluded that effective administration of taxes from multi-national companies is far more important than increased tax collection from other sources,” LTA notes.
LTA president Henriks Danusevics believes that without officially privileged partners, the government has to listen to representatives of small companies and socially unprotected residents, including Latvian Small and Medium Businesses Confederation, Latvian Anti-Poverty Platform and others, including Latvian Traders Association. (BNN/Business World Magazine)
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