The Minister of Finance emphasized that the changes are expected to increase the net income of approximately 95% of employees, or all those whose gross salary is up to 4,000 euros per month, with the largest increase for employees with a salary of up to 2,500 euros.
The minimum salary algorithm assumes that it is 45-50% of the average salary in the country with a tendency to approach 50%. Among them, in 2025 the minimum wage will increase from 700 to 740 euros, in 2026 – to 780 euros, in 2027 – to 820 euros, and in 2028 – to 860 euros.
A simplified non-taxable minimum is also planned, setting it at 510 euros in 2025, 550 euros in 2026, and 570 euros in 2027. Asheraden said that in 2028, the tax-free minimum is currently planned to be 570 euros, but it could be increased from the budget point of view. The minister added that the non-taxable minimum should reach 80% of the minimum salary.
At the same time, pensioners will receive a tax-free minimum of 650 euros instead of the current 500 euros from next year.
The agreement also provides for the introduction of two VAT rates, including the VAT rate of 25.5% for income up to EUR 105,300 per year or EUR 8,775 per month, and 33% for income above EUR 8,775 per month.
Currently, the differentiated non-taxable minimum is applied in a gradually reduced amount to a person’s annual income up to 1,800 euros. Employers have long pointed out the complexity of this system and the need to simplify it by moving to the same fixed non-taxable minimum for all. As the amount of the tax-free minimum will remain the same regardless of the salary, citizens will have more money, despite the fact that the VAT rate will increase from 20% and 23% currently to 25.5%, Asheraden explained.
Also, the agreement envisages taxing income above 200,000 euros per year with an additional VAT rate, taking into account all income – salary, dividends, capital and others. From 2027, an additional 3% VAT rate could be applied to such income.
As a compensatory mechanism, the transfer of contributions of one percentage point from the second level of pensions to the first level of pensions is provided.
Asheraden emphasized that the proposed scenario, together with the reduction of labor taxes, would encourage private consumption and investments, thus the gross domestic product (GDP) would increase by 0.2-0.3% annually, or by 330 million euros in three years. At the same time, the changes developed would equalize Latvia’s labor cost competitiveness at the Baltic level, which would leave additional funding for companies for further investments and promote economic growth.
The Ministry of Finance (FM) explains that, for example, for a worker without dependents who receives the minimum wage, next year it will increase to 740 euros per month. Since the non-taxable minimum will be increased to 510 euros per month, this person is expected to have a salary increase of 38 euros.
For a teacher without dependents, who receives 1,526 euros per month, the salary will increase by 34 euros per month in 2025. On the other hand, the salary of an employee who receives 1,600 euros per month and has two dependents will increase by 63 euros per month next year.
The salary of an information technology specialist who receives 2000 euros per month, without dependents, will increase by 42 euros per month, and for a specialist with a salary of 2000 euros and two dependents – by 69 euros per month.
The salary of a manager who receives 3,000 euros per month will increase by 22 euros per month, and for a professional with a salary of 3,000 euros and two dependents – by 50 euros per month.
Tax changes provide for the allowance of working parents to be increased to 75% (currently 50%) of the amount of the parental allowance.
It is also planned to expand the tax relief for collective agreements (for mobility) up to 700 euros per year.
The proposal envisages applying a value added tax (VAT) rate of 12% to fresh fruits, berries and vegetables characteristic of Latvia. The amounts of support or subsidies received by farmers will not be subject to VAT.
On the other hand, in order to achieve the climate neutrality goals of the European Union, it is suggested to revise the excise tax on fuel and petroleum products. Also, in order to harmonize excise tax rates with the Baltic states, it is suggested to revise the tax rates for soft drinks with a sugar content of up to eight grams, alcoholic drinks, beer and tobacco products.
It is also planned to revise the rates of lottery tax, gambling tax, as well as vehicle operation tax and natural resource tax rates.
In order to improve the competitiveness of the labor force in the region, it is necessary to further reduce the burden of labor taxes on low- and medium-wage workers, according to the FM. Likewise, the OECD assessment indicates that in order to promote long-term economic development, Latvia should continue to transfer the tax burden from labor taxes to other (consumption and capital) taxes, while simultaneously increasing the progressivity of VAT.
2024-09-07 01:01:24