World Bank to Evaluate Equity and Efficiency of the Latvian Tax System

January 28, 2016

RIGA, January 28, 2016 – Today, The Ministry of Finance of the Republic of Latvia and the World Bank signed the Latvia Tax Policy and Equity Reimbursable Service Agreement (RAS) that aims to review the current tax system in Latvia through a lens of efficiency, competitiveness, revenue mobilization and equity.

We have a solid and longstanding cooperation with the Government of Latvia and we look forward to working with our counterparts on improving the efficiency and equity of the current tax system,” said Marina Wes, the World Bank Country Manager for Poland and the Baltic countries. “We hope that the findings of our analysis and proposed policy solutions will help the Government of Latvia to design a tax strategy that will position the country for future growth and shared prosperity.”

“The Ministry of Finance of Latvia has begun work to develop new tax policy guidelines 2017–2020. In order to carry out this task in the best possible quality, an objective and thorough evaluation of the current tax system is necessary. It is positive that the World Bank has experience of cooperation projects in Latvia, thus experts are already aware of our national situation. It will provide basis for a research of better-quality to achieve results that could be implemented in practice and to strive for even higher growth,” notes the Minister of Finance Jānis Reirs.

Latvia’s economy again is among Europe’s fastest growing and the tax system is viewed generally as competitive internationally. Nevertheless, more can be done to ensure the conditions for sustained high growth.

There is a continued need to combat the grey economy. Reducing tax evasion can help contribute to raising government revenues to meet growing spending needs - particularly in the areas of education, health and social protection. There may also be scope to introduce the fairness of the current tax system, for instance by reducing the tax burden for low-income employees. Any changes to the tax system have to ensure that Latvia’s hard-won fiscal sustainability is maintained while creating the conditions for inclusive and sustainable economic growth.

To position Latvia for the future, the World Bank, in close collaboration with the government and national experts, will review the tax system focusing on the following policy objectives:

  • Identifying options to increase government revenues to finance key spending needs, including the reduction of tax evasion and the grey economy;
  • Assessing options to change the design of the tax system to improve income equality; and
  • Maintaining competitiveness of the tax system.
The World Bank’s study aims at informing the formulation of a medium-term tax strategy by the Government of Latvia, including 2017 budget proposals. The study’s analysis and policy recommendations will be presented for public discussion throughout the preparation of the project. 
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