RIGA — In light of widespread tax evasion that has only been exacerbated by the severe economic crisis, Latvia’s finance ministry is planning to offer a set of incentives to keep companies honest with their accounting.
Estimates of the size of Latvia’s gray economy, i.e. legitimate businesses that are cheating on taxes and/or buying and selling goods under the table, vary from 15 to a whopping 40 percent, depending on the [private_supervisor]analysis. Activity in the construction sector, where a lot of gray activity takes place in Latvia, has been ground to a halt by the crisis but in other sectors more and more businesses are doing what they can to avoid the increased VAT and other taxes.
“From one side, we can say the gray economy is increasing. From the other hand, what I can say, construction is decreasing, this is where we saw a large share of the grey economy,” Dainis Gašpuitis, an economist at SEB’s Latvian branch told Baltic Reports. “This sector is freezing. It means that this share of the gray economy is disappering. Of course it’s increasing contraband, regarding cigarettes and spirits in the gray economy. It may be around this 30 percent.”
To encourage honesty in a tax system where so many do otherwise and to help turn around the national government’s troubled finances, the Latvian finance ministry is formulating a set of new policies that reward honest businesses, including being put on a priority list for state procurements, a one-off cancellation of fines for late tax payments, restructuring outstanding tax debt and declaring previously undisclosed assets.
However, critics of the measure note that finance minister Einars Repše opposed a similar measure when he was serving as prime minister in 2002, and that similar measures in other countries such as Italy have failed because the culture of tax evasion has become too engrained.
“It would be important regulation if it was introduced in the 1990s,” Gunta Kauliņa, a tax consultant for KPMG Baltic told the Diena newspaper.
Others said it would not do enough to be effective.
“Hairdressers, small shops, nannies that do not pay taxes — this law will have to get inside the gray economy and change how these people live,” Ģirts Rungainis, a partner at Prudentia, told Diena. Rungainis said he did not expect the tax amnesty offer to be taken up by many business people. [/private_supervisor] [private_subscription 1 month]analysis. Activity in the construction sector, where a lot of gray activity takes place in Latvia, has been ground to a halt by the crisis but in other sectors more and more businesses are doing what they can to avoid the increased VAT and other taxes.
“From one side, we can say the gray economy is increasing. From the other hand, what I can say, construction is decreasing, this is where we saw a large share of the grey economy,” Dainis Gašpuitis, an economist at SEB’s Latvian branch told Baltic Reports. “This sector is freezing. It means that this share of the gray economy is disappering. Of course it’s increasing contraband, regarding cigarettes and spirits in the gray economy. It may be around this 30 percent.”
To encourage honesty in a tax system where so many do otherwise and to help turn around the national government’s troubled finances, the Latvian finance ministry is formulating a set of new policies that reward honest businesses, including being put on a priority list for state procurements, a one-off cancellation of fines for late tax payments, restructuring outstanding tax debt and declaring previously undisclosed assets.
However, critics of the measure note that finance minister Einars Repše opposed a similar measure when he was serving as prime minister in 2002, and that similar measures in other countries such as Italy have failed because the culture of tax evasion has become too engrained.
“It would be important regulation if it was introduced in the 1990s,” Gunta Kauliņa, a tax consultant for KPMG Baltic told the Diena newspaper.
Others said it would not do enough to be effective.
“Hairdressers, small shops, nannies that do not pay taxes — this law will have to get inside the gray economy and change how these people live,” Ģirts Rungainis, a partner at Prudentia, told Diena. Rungainis said he did not expect the tax amnesty offer to be taken up by many business people. [/private_subscription 1 month] [private_subscription 4 months]analysis. Activity in the construction sector, where a lot of gray activity takes place in Latvia, has been ground to a halt by the crisis but in other sectors more and more businesses are doing what they can to avoid the increased VAT and other taxes.
“From one side, we can say the gray economy is increasing. From the other hand, what I can say, construction is decreasing, this is where we saw a large share of the grey economy,” Dainis Gašpuitis, an economist at SEB’s Latvian branch told Baltic Reports. “This sector is freezing. It means that this share of the gray economy is disappering. Of course it’s increasing contraband, regarding cigarettes and spirits in the gray economy. It may be around this 30 percent.”
To encourage honesty in a tax system where so many do otherwise and to help turn around the national government’s troubled finances, the Latvian finance ministry is formulating a set of new policies that reward honest businesses, including being put on a priority list for state procurements, a one-off cancellation of fines for late tax payments, restructuring outstanding tax debt and declaring previously undisclosed assets.
However, critics of the measure note that finance minister Einars Repše opposed a similar measure when he was serving as prime minister in 2002, and that similar measures in other countries such as Italy have failed because the culture of tax evasion has become too engrained.
“It would be important regulation if it was introduced in the 1990s,” Gunta Kauliņa, a tax consultant for KPMG Baltic told the Diena newspaper.
Others said it would not do enough to be effective.
“Hairdressers, small shops, nannies that do not pay taxes — this law will have to get inside the gray economy and change how these people live,” Ģirts Rungainis, a partner at Prudentia, told Diena. Rungainis said he did not expect the tax amnesty offer to be taken up by many business people. [/private_subscription 4 months] [private_subscription 1 year]analysis. Activity in the construction sector, where a lot of gray activity takes place in Latvia, has been ground to a halt by the crisis but in other sectors more and more businesses are doing what they can to avoid the increased VAT and other taxes.
“From one side, we can say the gray economy is increasing. From the other hand, what I can say, construction is decreasing, this is where we saw a large share of the grey economy,” Dainis Gašpuitis, an economist at SEB’s Latvian branch told Baltic Reports. “This sector is freezing. It means that this share of the gray economy is disappering. Of course it’s increasing contraband, regarding cigarettes and spirits in the gray economy. It may be around this 30 percent.”
To encourage honesty in a tax system where so many do otherwise and to help turn around the national government’s troubled finances, the Latvian finance ministry is formulating a set of new policies that reward honest businesses, including being put on a priority list for state procurements, a one-off cancellation of fines for late tax payments, restructuring outstanding tax debt and declaring previously undisclosed assets.
However, critics of the measure note that finance minister Einars Repše opposed a similar measure when he was serving as prime minister in 2002, and that similar measures in other countries such as Italy have failed because the culture of tax evasion has become too engrained.
“It would be important regulation if it was introduced in the 1990s,” Gunta Kauliņa, a tax consultant for KPMG Baltic told the Diena newspaper.
Others said it would not do enough to be effective.
“Hairdressers, small shops, nannies that do not pay taxes — this law will have to get inside the gray economy and change how these people live,” Ģirts Rungainis, a partner at Prudentia, told Diena. Rungainis said he did not expect the tax amnesty offer to be taken up by many business people. [/private_subscription 1 year]
— This is a paid article. To subscribe or extend your subscription, click here.
