Poor households will gain very little from the recently approved tax reform. There is a large number of unemployed people, which will not the change with PIT, according to results of a study performed by Stockholm School of Economics in Riga and economic policy research center Biceps.
At the same time, the reform does not include increasing the tax burden for residents who are paid large wages, because the newly introduced and increased PIT rate (31.4%) will be financed using revenue from solidarity tax.
Researchers Anna Pluta and Anna Zasova explain: “The tax reform includes three PIT rates: 20% for annual income under EUR 20,000; 23% for income from EUR 20,001 to EUR 55,000 and 31.4% for income above EUR 55,000. At the same time, the reform includes that the 31.4% PIT rate is administered by diverting part of the solidarity tax, which is applied for income above EUR 55,000 a year, to finance PIT. This way the tax burden does not increase for recipients of large wages.”
Researchers emphasize that the tax reform also provides for the reduction of the tax burden for income below EUR 20,000. The tax burden will not change for income above this threshold. In absolute terms, income increase will be higher for those people, whose income level is higher. For example, poor residents will gain on average EUR 1.70 from this reform, whereas wealthy residents will gain EUR 14.84.
SSE Riga/BICEPS work group calculated results from the tax reform using Euromod tax/benefit micro simulation model. (BNN/Business World Magazine)
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