VILNIUS — Latvia’s government ministers have made a number of last-minute changes in taxes just days before the 2010 budget is set to pass its second and final hurdle in the national legislature.
The tax increases, ranging from housing to motorcycles, have many Latvians feeling either flabbergasted, despondent, or outraged, as displayed by a number of bikers who congregated outside the government building on Tuesday.
Critics are impugning the taxes as akin to squeezing blood from a stone, but the government, which is being forced to appease international lenders, without whom the country would go insolvent, must find approximately 55 million lats (€77 million) in additional revenues to reduce the budget deficit.
So if a month ago the government introduced a flat housing tax, then on Tuesday it agreed to a progressive housing tax, ranging from 0.1 to 0.3 percent of the cadastral value of a property. Residences worth more than €75,000, approximately 1 percent of all housing in Latvia, will be hit with the highest rate, while houses in the 40,000 to 75,000 lat (€56,000 to €105,000) range will pay 0.2 percent. The latter group represents only 3.4 percent of all housing in the country.
Latvian President Valdis Zatlers spoke out in favor of a progressive housing tax on Monday.
“If all the wealthiest people in Latvia can pay all of a half-million lats for their home, this doesn’t come off as serious,” Zatlers said on a Latvian television news program. “I think that people who are better off can give a bit more for their country.”
According to the previous flat housing tax, or 0.1 percent of the cadastral value, the wealthiest homeowners would have paid an aggregate 500,000 lats to the budget. Another last-minute change was to cancel plans for a 25 percent profit tax on enterprises whose earnings exceed 5 million lats per year. According to reports, experts managed to convince ministers that such a tax would be nearly impossible to collect since so few companies make such large profits in the current economy. Instead, the government agreed to raise personal income tax from 23 percent to 26 percent.
Meanwhile, automotive owners are also set to take a hit. Starting Jan. 1, the tax on mid-size and smaller cars will double from 12 to 24 lats (€33.80), while larger vehicles will now be taxed annually at 48 lats (€67) instead of the current 24. Motorcyclists will see their yearly road tax rocket from 3 lats to 50 next year since, according to the argument cited in the local media, motorcycles are considered a “luxury item.”
News of the steep hike infuriated lovers of Harleys and Yamahas, and a group of about 50 bikers organized an impromptu demonstration in front of the Cabinet of Ministers building on Brīvības Avenue. Police immediately broke up the protest since official sanction had not been granted.
Many pundits and political scientists slammed the government for the numerous tax hikes. “The government has completely broken its promises,” said Raita Karnīte, an economist, told the Leta news agency. “It’s not the state, but the government that is bankrupt.”
