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Latvia Planning Solidarity Tax

by Tatiana Smolenskaya, Tax-News.com, Moscow

02 October 2015


Latvia's Finance Ministry has announced a draft law for the introduction of a new tax for high earners, to make the nation's flat tax regime more progressive.

The Ministry noted the regressive nature of current income tax and social security charges. To make the system "fairer," the Ministry has proposes a "solidarity levy", to be charged on those with higher incomes.

From 2016, the solidarity tax will be charged in respect of all remuneration exceeding the upper ceiling for social security contributions. For 2015, this is EUR48,600 (USD54,645).

A recent report from the OECD recommended such reforms, noting that the composition of taxes in Latvia is skewed towards the taxation of labor, with the combined revenue from income tax and social security contributions accounting for 53 percent of total revenues (compared with 50 percent in the OECD area). It said that high tax rates are regressive and are both a deterrent to labor market participation and to formal employment, contributing to a large hidden economy. The OECD proposed that the tax burden should be reduced for those on low incomes in particular.

TAGS: compliance | Finance | tax | tax compliance | fiscal policy | law | employees | Latvia | unemployment | tax rates | social security | tax reform

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