On Thursday, the 19th of September, Latvian government supported changes to the labour taxes that provide for raising PIT, minimal wage and non-taxable minimum rates, compensating them at the same time with increases of excise and several other taxes.
The proposed labour tax change provides for increasing the net income of about 95% of employees, or all those whose gross salary is up to EUR 4 000 per month, with the biggest increase directly for employees with a salary of up to EUR 2 500, the Ministry of Finance reports.
The ministry explains that the proposed scenario simplifies the tax system and, along with the reduction of labour taxes, would promote private consumption and investment. At the same time, the changes developed would level the competitiveness of Latvian labour costs at the Baltic level, and would leave additional funding for companies for further investments and promote economic growth.
From 2025, it is planned to set the fixed tax-free minimum for all salaries in the amount of EUR 510 per month, and from 2026 to 550 euros and in 2027 to EUR 570 per month. The pensioners’ non-taxable minimum is expected to be raised from EUR 500 to EUR 1 000 per month next year. The minimum wage in 2025 will increase from EUR 700 to EUR 740 per month, in 2026 to EUR 780 per month, from 2027 to EUR 820 per month, and from 2028 to EUR 860 per month.
More on this topic: Latvia to adopt 3% PIT for annual income above EUR 200 000 next year
In order to achieve the promotion of the climate neutrality goals of the European Union, it is gradually planned to increase the rates of excise duty on fuel, as well as on fuel, natural gas and petroleum gases used as fuel, as a CO2 component. In 2025, the rate will be EUR 10 per tonne of CO2, and in 2026, EUR 20 per tonne of CO2.
Also, from 2025, it is planned to increase the excise duty rate for non-alcoholic beverages with a sugar content of up to eight grams per 100 ml from EUR 7.4 per 100 l to EUR 11 per 100 l. As a result, the tax share per 1 l of beverage would increase by four cents, explains the ministry.
From 2027 onward, in order to harmonize excise duty rates with the Baltic States,
it is planned to increase the rate of excise duty also for alcoholic beverages, including beer, tobacco products and by purpose similar products, such as heated tobacco, tobacco leaves, e-liquid and tobacco substitute products.
As a result, according to the ministry’s calculations, the price of a 0.5 l bottle of spirits (alcohol content 40 percent by volume) could increase by 0.15 cents in 2027, wine bottles (0.75 l) by six cents, and 0.5 l beer bottles (alcohol content 5.2 percent by volume) by two cents.
The tax share (the minimum level of excise duty and the share of value added tax applicable to it) will increase by 46 cents for a packet of cigarettes in 2027, and by 19 cents for a packet of heated tobacco (5.3 grams). The price of a 40-gram pack of smoking tobacco could increase by 62 cents, and one pack of cigars or cigarillos (10 pieces) by 29 cents.
In turn, the tax level for electronic cigarette refill liquids will increase by 10 cents for a 2 ml package, and by 48 cents for a 10 ml package. The share of taxes on tobacco substitutes (e.g. nicotine pads, 14 g packaging) will increase by 28 cents in 2027.
The proposal includes a plan to abolish the excise duty exemption for petroleum products used in electricity generation and cogeneration by setting an excise duty rate as petroleum products used as fuel.
Starting from 2025, it is planned to increase the lottery tax rate to 15% and to increase the gambling fee for the re-registration of the gambling organization license from EUR 37 000 to EUR 45 000 for each current year.
In turn, starting from 2027, the Lotteries and Gambling Law provides for a number of more changes, including increasing the gambling tax rate for winning games by phone and betting and betting to 18% and increasing the gambling tax rate for bingo to 12%.
The working parents’ allowance is to be increased to 75% (currently 50%) of the amount of parental allowance granted. Provision is also made for the extension of the pit facilitation for collective agreements (mobility) up to EUR 700 per year.
In turn, the recipients of the royalty are expected to continue the procedure for payment of taxes established so far for another three years.
The proposal provides for the continued application of a value added tax (VAT) rate of 12% on fresh fruits, berries and vegetables typical of Latvia. The amounts of aid (subsidies) received by farmers will not be subject to the PIT. Similarly, PIT will not apply to income from the alienation of real estate that is agricultural land by type of use.
The necessary changes are planned to be pushed in the package of draft laws accompanying the draft “Law on the State Budget for 2025 and the Budget Framework for 2025, 2026 and 2027”.
According to estimates from the Ministry of Finance, the planned changes to the labour taxes in 2025 will cause a deficit of EUR 87.1 million in the state budget.
Changes in the pit will result in a deficit of EUR 191.1 million, the increase of the pensioner’s non-taxable minimum – a deficit of EUR 119.3 million, the increase of the non-taxable minimum – a deficit of EUR 449.9. Changes in pit rates and income thresholds will bring an additional EUR 352.9 million to the budget, while the VAT reversal effect will bring an additional EUR 25.2 million to the budget.
The transfer of one percentage point of contributions from the funded pension scheme to the first tier will bring additional revenue to the budget of EUR 14 million.
The application of 12% VAT on fresh fruits, berries and vegetables will cause losses of EUR 17.1 million.
In turn, the expansion of PIT relief for collective agreements (mobility) to EUR 700 per year will result in a loss of EUR 14 million to the budget.
The ministry reports that compensatory measures for the budget will bring EUR 103 million in additional revenue.
The increase in excise rates will allow to collect an additional EUR 33 million, the proceeds from the sale of confiscated criminal proceeds are planned to amount to EUR 30 million, the increase in tax revenues in connection with the increase in the minimum wage is calculated at EUR 18.4 million, the transition to the basic rate of 25.5% pit will allow to collect an additional EUR 17 million, the increase in the minimum wage will allow to collect EUR 17.1 million.
Increasing the rate of excise duty on sweetened soft drinks will allow for additional collection of EUR 3.3 million, indexation of the car operation tax on all vehicles and changes in the payment term of this tax will allow for collection of EUR 11.4 million, while increasing the rate of the lottery tax will allow for additional collection of EUR 2.5 million.
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Publish date : 2024-09-19 05:45:00
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