Study: Total Tax Rate of Latvia is Lower than in World and EU

According to the World Bank and PricewaterhouseCoopers' (PwC) report on tax payments, Latvia's total tax rate (37.9%) is lower than the world average tax rate (44.8%) and the average European Union tax rate (43.4%).

Globally, the average total tax rate for a small to medium-sized company is now 44.8 percent of its commercial profit. Complying with tax regulations takes an average of 28.5 payments and a total of 277 hours.

Partner of PwC's Latvian branch Zlata Elksniņna-Zascirinska told that in terms of ease of tax payments, this year Latvia has fallen to the 59th place from the 45th of the last year. The time to comply with all administrative requirements declined slightly - 293 hours were necessary in the last year, while this year - 290 hours.

In terms of the total tax rates in Europe, Latvia has maintained the 8th place.

In accordance with the publication preparation methodology, report was made on the basis of the existing tax laws and tax regulations of the year 2010. Results suggest that the total tax rate of Latvia has declined from 38.5% to 37.9%, which is lower than the world average rate (44.8%) and the average rate in the European Union (43.4%). According to PwC, the total tax rate declined, since in 2010 the tax loss relief period was extended from five to eight years.

To compare, the total tax rate in the neighbouring countries of Latvia taxes has increased: in Lithuania from 38.7% to 43.9% and now it is close to the EU average tax rate, while in Estonia taxes rose - from 49.6% to 58.6% that is above the EU average tax rate.

Governments continue to reform their tax systems, according to a new report by the World Bank and PwC. In all, 123 out of 183 economies measured have made significant tax regulatory changes since 2006 to ease tax burdens for small and medium-sized companies, as governments seek to increase business company registrations and relieve the impact of the global economic downturn.

The latest report "Paying Taxes 2012" finds that 33 economies made it easier and less costly to pay taxes from June 2010 through May 2011. The most common tax reform was the increased use of online systems to facilitate tax compliance, introduced in 23 economies. Electronic tax filing and tax payment reduces the amount of paperwork, allows a more targeted and risk based approach to tax audit and compliance, and can help eliminate corruption.

"Paying Taxes 2012" measures all mandatory taxes and contributions that a medium-sized company must pay in a given year. Taxes and contributions measured include the profit or corporate income tax, social contributions tax and labour taxes paid by the employer, property taxes, property transfer taxes, dividend tax, capital gains tax, financial transactions tax, waste collection taxes, vehicle and road taxes, and other small taxes or fees.

The report found that the total tax rate for small and medium-sized companies has fallen by 8.5 percentage points since 2006, more than one point per year. During that period, the time it takes to comply with business taxes declined by more than a day a year (54 hours), and the number of tax payments required dropped by five.

"The high number of reforms in tax administration shows that improving the tax system for businesses is high on the agenda for governments," said Augusto Lopez Claros, Director, Global Indicators and Analysis, World Bank Group. "If they create a system that is easy to comply with, it is more likely that businesses will operate in the formal economy and provide a more sustainable source of revenue than debt or aid."

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