ISSN 1822-7996 (PRINT), ISSN 2335-8742 (ONLINE) TAIKOMOJI EKONOMIKA: Anita PUZULE SISTEMINIAI TYRIMAI: 2015.9/2 http://dx.doi.org/10.7220/AESR.2335.8742.2015.9.2.6 Erika ZUBULE
Problems of Financial Provision at the Latvian Municipalities in the Tax Policy Context
The research aims to raise the problems of the local municipalities in Latvia that are related to a lack of finan- cial resources. An active use of the tax policy to ensure the municipal finances in Latvia is examined in the paper. The authors have investigated the current situation and, using the ideas and experience of the other countries, have elaborated the recommendations on how to successfully adapt the tax policy to the current Latvian conditions in order to improve the financial capacity of the local municipalities thus raising their interest to support the entrepreneurship. Keywords: corporate income tax, local government budget, municipal taxes, personal income tax, property tax.
Tyrimo tikslas – parodyti vietinių Latvijos savivaldybių problemas, susijusias su finansinių išteklių trūku- mu. Darbe nagrinėjamas aktyvus mokesčių politikos naudojimas, siekiant užtikrinti savivaldybių finansavimą Latvijoje. Autorės išanalizavo esamą situaciją ir, besiremdamos kitų šalių patirtimi, parengė rekomendacijas, kaip sėkmingai pritaikyti mokesčių politiką esamomis sąlygomis Latvijoje, gerinant vietinių savivaldybių fi- nansinį pajėgumą ir didinant jų susidomėjimą verslumo rėmimu. Raktažodžiai: įmonių pajamų mokestis, savivaldybės biudžetas, savivaldybių mokesčiai, gyventojų pajamų mokestis, nekilnojamojo turto mokestis.
JEL Classifications: G22/E22/E23.
Introduction
Along with the consolidation of demo- more attention is being paid to this issue, cratic principles in public administration, and the prevailing opinion is that the suc- the municipal finances are considered as cess of the national macroeconomic de- an important constituent part of the state velopment is stimulated by the sufficiently financial system. They are used to ensure broad regionalization of the economic and economic and social development of the social process, when the functions over the national administrative territories. There- control of these processes are transferred fore in the economic literature, more and to the local state government authorities.
Anita PUZULE – Mg. oec. at Rezeknes Augstskola, Latvia. Address: Atbrīvošanas aleja 115, Rēzekne, LV-4601; phone: 00 371 264 13185; e-mail: [email protected]. Erika ZUBULE – Dr. oec. at Rezeknes Augstskola, Latvia. Address: Atbrīvošanas aleja 115, Rēzekne, LV-4601; phone: 00 371 264 30306; e-mail: [email protected]. 92 Anita PUZULE, Erika ZUBULE
Consequently, the role of the local finances literature, research articles, and publica- in the implementation of the state social tions by Latvian and foreign authors, sta- and economic policy strengthens and ex- tistical data, as well as the legal regulations. pands. Thus, it can be affirmed that the local governments are an integral component Assessment of the Budget of public administration, and the munici- Revenue Structure of Latvian pal finances are an important guarantee Municipalities for their existence, development, and ad- vancement of the successful functioning. Issues related to the municipalities in Lat- An efficient use of the finances is of -par via are studied by E. Vanags (2006) and ticular importance for the Latvian munici- I. Vilka (2006) focusing on the adminis- palities due to ever increasing demand for trative division of the local governments, the quality services and the higher socio- V. Vespers (2012) evaluating the develop- economic level. These factors produce the ment opportunities of the municipalities, need to expand and improve the financial E. Gross (2012), S. Bruna (2012) analysing provision of the municipalities, as well to the financial situation of Latvian munici- solve the problems related to the improve- palities and paying more attention to the ment of formation and use of the munici- financial equalization system, and S. Zelca pal financial resources. The national tax (2008) assessing the revenues of the basic policy shall be highlighted as the most sig- budget in the regional perspective. It shall nificant influencing factor. be noted that the municipal finances are an Research object – impact of the tax issue extensively discussed by politicians, policy on financial provision of the local representatives of the regional authorities budget. and local governments, however, it has The aim of the research is to assess an not been investigated comprehensively active use of the tax policy to ensure the enough. municipal finances in Latvia. In the financial practice, the main task Research objectives: of the municipal budget is to distribute the 1) to assess the budget revenue structure financial resources available at the cur- of the Latvian municipalities from the rent financial year in order to ensure the legal and practical perspective; implementation of the statutory functions 2) to analyse the tax revenues of the mu- and duties of the municipalities in ac- nicipal budget, indicating improve- cordance with the priorities of the local ment opportunities; governments. Since there is a situation in 3) to draw up proposals for improvement Latvia that the finances required to cover of the financial provision of the Latvian municipal expenditures always exceeds municipalities in the tax policy context. the resources available, the budget process The research methods: the mono- involves the selection of choices and deci- graphic descriptive method, statistical sion-making that to some extent depends methods in economics, method of logi- on the subjective factors. cal construction are used in the research. In Latvia, the financial activities, bud- Methodological issues are addressed on get process, budget rights, autonomy of the basis of the theoretical research of the the local governments, and relations with PROBLEMS OF FINANCIAL PROVISION AT THE LATVIAN MUNICIPALITIES IN THE TAX POLICY CONTEXT 93 the national budget and budgets of other • deductions from the state taxes and du- local governments are determined by sev- ties; eral laws. Th e most important are the Law • municipal duties; on Budget and Financial Management ad- • state budget subsidies and special pur- opted in 1994 and the Laws on Local Gov- pose subsidies; ernments Budgets and on Taxes and Du- • subsidies from the local government ties adopted in 1995. fi nancial equalization fund; In accordance with the Law on Bud- • settlements with the municipal bud- get and Financial Management, munici- gets; pal budgets for each fi nancial year shall • payments for services, deductions include all the revenues collected or re- from the capital companies’ profi ts, in- ceived by the local government and loans comes from lease (rent) of the munici- appropriated by the municipalities for the pal property, property sales, and other municipal purposes. Article 42 of the Law statutory revenues (Saeima, 1995a). stipulates that the municipalities have the Th e authors refl ect the data on the right to budget revenues in accordance basic budget revenue structure of the Lat- with the legislation in order to ensure an vian municipalities in Fig. 1, demonstrat- independent and secure revenue base in ing the types of income that are decisive in compliance with the requirements of mac- ensuring the fi nancial activities of the local roeconomic stability, including the right to governments. impose the local government duties in the Th e largest share of municipal budget – order and to the extent prescribed by the 58.1 % comprise tax revenues, therefore, law (Saeima, 1994). it is considered as the main source of the Focusing the attention to the munici- municipal budget revenue. It can be af- pal revenues, the Law on Local Govern- fi rmed that it has a relatively steady up- ments Budgets stipulates that the budget ward trend that, in the authors’ opinion, revenues of the cities and the territorial mainly is caused by the surplus of the per- municipalities are comprised of: sonal income tax revenue and a share of
Fig. 1. Revenue structure of the local government basic budget in 2013, %
Source: formed by the authors using Treasury Republic of Latvia (2013). 94 Anita PUZULE, Erika ZUBULE
the personal income tax that is to be trans- to increase economic activity in regions, ferred to the municipal budget in order to attracting and using the resources of the compensate the increase of the non-tax- surrounding areas by supporting the en- able minimum of incomes. trepreneurship development and promot- The second largest revenue item is the ing the mobility of the population (Saeima, sums transferred to the municipalities 2012). Development of the regions brings from the state budget in the form of the up an issue of fiscal decentralization and state subsidies and the earmarked subsi- setting the local taxes for the municipali- dies that, along with the payments from ties to be independent. G. Davulis (2009) the state budget institutions, comprised in his research has studied this problem in 33.4 % in 2013. The authors consider that Lithuania, however, it is up to date issue in it points out to the yet substantial depen- Latvia as well. dence of the local government budgets on In Latvia, the tax burden is relatively the state budget. low, and the regional disparities become Revenue from the services rendered apparent as developing of one particu- against payment and other incomes com- lar region, which includes the capital city prised 6.1 % in 2013. In turn, the non-tax Riga. The Territory Development Index, revenues consisting of revenue from the which indicates higher or lower develop- lease or sale of the state (municipal) prop- ment of territories as compared with the erty and from the capitalization of the tax average of the national socio-economic principal was 2.2 % in 2013. The municipal development level, is positive (0.926) only basic budget revenue from the foreign fi- in Riga region, while in other regions it is nancial aid was 13.3 million EUR or 0.2 % negative in 2013 (State Regional Devel- in 2013. opment Agency, 2014). E. Zelgalvis and The authors consider that the revenue A. Joppe (2014) remark that the Territory structure of the municipal basic budget Development Index is positive only in Riga does not demonstrate the sufficient in- region and constantly negative in the other dependence of the financial resources four regions of Latvia starting already available for the local governments, since from 1999. The Territory Development more than a third of the total revenues yet Index for the planning regions is calcu- comprises the payments received. If the lated using eight indicators, including per- state suspends transfer payments, the local sonal income tax amount per inhabitant government revenues would abruptly de- and per individual merchant, number of crease, as currently the municipalities have commercial enterprises per 1000 inhabit- limited possibilities to raise additional ants (Cabinet of Ministers, 2014), which is funds. related to the personal income tax revenue and activity of the performers of economic activities. The Territory Development Tax Revenues in the Index is an indicator, which is considered Municipal Budgets when granting additional funding for the regions. In their study, R. M. Boboc and As provided in the National Develop- I. I. Alecu (2013) mention that the absorp- ment Plan of Latvia, in order to stop the tion of the EU funds should be linked to tendency for centralization, it is necessary reduce dependence on the foreign loans, Problems of Financial Provision at the Latvian Municipalities in the Tax Policy Context 95 growth of employment and labour pro- (Belgium, Germany, Austria, and Spain). ductivity, diversification of economic and In Latvia, 19.3 % of the total tax revenues capital market funding. Hence, the regions were transferred to the municipal budget should not rely only upon the EU funds, in 2012, thus presenting the eighth best re- but rather should enhance the citizens’ and sult among the EU–28 countries (Eurostat, business activity. In its turn, increased ac- 2014). It indicates that tax revenue distri- tivity of inhabitants and businesses leads bution between budgets varies in different them to facing with tax payments; the lat- countries. ter need to be improved as well. As already noted, the main taxes con- It is clear that the fiscal policy provides stituting more than a half of the municipal financing of the public functions and the budget revenue are a share of the personal existence of the state; moreover, the exis- income tax and the immovable property tence of the state is not imaginable with- (real estate) tax. As well, the local govern- out taxes. C. L. Reynolds and S. M. Rohlin ment budget tax revenues are constituted (2015) examine the fiscal policy not only at by the deductions from the lottery and national level, but in the municipal aspect gambling tax, and the natural resources as well, indicating that the tax redistribu- tax. tion can be based on the location of the However, it shall be pointed out that all particular territory too. This question is 15 taxes listed in the Law on Taxes and Du- currently present in Latvia, where the ter- ties (Saeima, 1995b) are state taxes, hence ritorial development disparities exist. it signifies that officially no municipal Tax redistribution between the state taxes exist in Latvia. and the local budgets are researched by In comparison, the municipal taxes L. P. Feld (2015) and M. Koethenbuerger exist not only in the old EU countries but (2011). The economists underline that also in most of the new EU member states the countries determine and define the providing the right to levy municipal own municipal functions that require financial taxes; the three main categories of the local resources to be implemented, though the taxes are property taxes, local business high-quality tax policy that would stimu- taxes, and local income taxes. late revenues is not designed along. As regards the property taxes, propor- The authors will assess the structure tions of the tax revenue distribution be- of tax revenues as distributed among the tween the state and municipal budgets and central government, local government, the rights provided to the local authorities and social security funds of the Euro- to determine the taxable base, rates, and pean Union (EU–28 countries). In 2012, exemptions differ in the EU countries. 48.7 % of the aggregate tax revenue in 100 % of the property taxes are transferred the EU–28 was claimed by the central or to the municipal budgets in Bulgaria, Es- federal government, 32.0 % accrued to tonia, Latvia, Lithuania, Poland, and Slo- the social security funds and 11.0 % – to venia. In Italy (95.5 %), Portugal (99.6 %), local government. There are considerable Romania (97.2 %), and Slovakia (99.4 %) differences in structure from one member over 90 % of the property tax revenues are state to another; for instance some mem- received by the municipalities In turn, a ber states are federal or they grant regions low percentage of deductions is in Cyprus a very high degree of fiscal autonomy (8.3 %), Luxembourg (7.8 %), and in Malta 96 Anita PUZULE, Erika ZUBULE
where all is transferred to the state bud- between the state and local government get (Zhang, 2013). However in these ex- budgets, and in 1941–1943, when the mu- amples, it is still necessary to consider the nicipal budgets used to receive a share of rights provided to the municipalities to in- the profit tax (Zvejnieks, 1998). As well, fluence the taxable base, rates, and exemp- in Latvia since 1994, there are no corpo- tions. The authors will review only those rate income tax deductions to the munici- countries, where 100 % of the property tax palities existing, for example, in Denmark, revenues are transferred to the local gov- Finland, Poland, and Slovakia. ernment budget, as it is in Latvia as well Many countries have determined spe- (Table 1). cific municipal rates of the personal in- As shown in Table 1, the local gov- come tax, for instance, Denmark (aver- ernments of Estonia, Lithuania, and Po- age 25.6 %), Finland (16.5–22.5 %), and land have the most rights to influence the Sweden (29–34 %). In the EU countries, amount of property tax. It shall be noted the practice regarding deduction of part that none of these countries provide the of the personal income tax to the local rights to determine the taxable item. In governments differs significantly. In turn, Latvia, the local governments may only in Latvia since 2012, it constitutes 80 % of determine tax exemptions in accordance the total personal income tax and; in com- with the amounts stipulated by the law. parison with other EU countries, it is suf- The world practice demonstrates that ficiently large share. regarding the corporate income tax there Yet in other countries, there is a practice are specific municipal rates defined or part to deduct to the local government budgets of the total tax revenue is deducted. Spe- a part of the value added tax revenues as cific municipal rates are defined in Ger- well, for instance, in Germany, Italy, Portu- many (14–17 %), Hungary (0–2 %), Italy gal, Spain, and the Czech Republic. (3.5 %), and Luxembourg (6–12 %) (De- Thus, the most common tax deduc- loitte, 2015). In Latvia, a diversion of CIT to tions to the local governments are per- the municipal budgets has existed twice – sonal income tax, corporate income tax, in 1922–1940, when the commercial and value added tax, motor vehicle tax, and industrial tax had been divided equally property transaction payments.
Table 1 Local government discretion regarding immovable property taxes
Local discretion Country Tax / tax base Rates Exemptions Bulgaria No Yes No Estonia No Yes Yes Latvia No No Yes (certain abatements) Lithuania No Yes (only Immovable Property tax) Yes Poland No Yes Yes Slovenia No Yes No Source: formed by the authors using X. Q. Zhang (2013). Problems of Financial Provision at the Latvian Municipalities in the Tax Policy Context 97
In Latvia, the local governments re- budgets consists of the personal income ceive transfers of two taxes – 80 % of the tax that has increased by 25.06 % points personal income tax and 100 % of the in the studied period and has comprised real estate tax; though the municipalities about 85 % of the total amount of tax rev- have the right to determine tax exemp- enues transferred to the municipal budgets tions only to the real estate tax in order to in 2013. In 2010, compared with the pre- foster business development on its terri- vious year, share of the personal income tory. Furthermore, the local government tax being transferred to the municipal budgets receive full amount of the lotter- budget was reduced by three percentage ies and gambling tax revenues from the points – from 83 to 80 %; although the per- local lotteries, natural resources tax on the sonal income tax rate on wages increased use of radioactive substances and natural from 23 to 26 %, income tax rate on the resources tax on the incineration of haz- economic activities and royalties – from ardous waste, and on the use of the earth 15 to 26 % (the tax rate was reduced by entrails pumping natural gas into the geo- 25 % in 2011); and individual incomes logical structures. Similarly, the local gov- from the capital are taxable by the personal ernment budgets receive revenues from income tax since 2010. the lottery and gambling tax on the gam- From the economic point of view, total bling games (25 %) and from the natural personal income tax revenues is mainly resource tax payments on the extraction of affected by the number of employed in the natural resources or the environmental the economy, wages and salaries, amount pollution (60 %). of the non-taxable minimum of the per- To assess the significance of the above- sonal income tax, minimum wage, as well mentioned tax revenues in constituting as tax exemptions. From January 1, 2015, the local government budget, the authors the minimum monthly salary is set EUR demonstrate the growth dynamics of the 360, which is about EUR 40 more than in municipal tax revenues in Latvia (Table 2). 2014; in comparison it was EUR 284.57 Reviewing the municipal tax revenue in 2013; as well from January 1, 2014, the growth dynamics (Table 2), it can be con- non-taxable minimum of the personal in- cluded that the major share of the tax rev- come tax was increased from EUR 64.03 enues transferred to the total municipal to EUR 75 per month, and tax exemptions
Table 2 Tax revenue of local government budgets in 2009–2013, million EUR
Personal income Immovable prop- Lottery and gambling Natural resources Year tax erty tax tax tax 2009 853.15 103.93 7.07 3.41 2010 904.24 127.60 5.2 4.82 2011 924.01 156.79 5.4 6.72 2012 992.03 167.05 6.5 9.53 2013 1067.01 172.74 6.7 9.82 Source: formed by the authors using Treasury Republic of Latvia (2013). 98 Anita PUZULE, Erika ZUBULE
for the dependents – from EUR 113.83 to using the infrastructure services of other EUR 165 per month. Consequently, it can municipality. Therefore, to ensure that the be concluded that these changes in legisla- municipalities could maintain infrastruc- tion will significantly affect the local gov- ture in good quality, some part (in average ernment budget revenues generating im- 1–2 %) of the personal incomes of the peo- pact on the total amount of the personal ple employed in the municipal institutions income tax. and enterprises shall be transferred to the The part of the personal income tax municipal budgets. revenue being transferred to the munici- The real estate (immovable property) pal budget is an essential part of the annual tax is paid on land, the buildings, and engi- negotiations between Latvian Association neering structures located on the territory of Local Authorities and the Ministry of of the municipalities. Finances. For many years, Latvian Associa- Evaluating a share of the real estate tax tion of Local Authorities has been able to in the local government budget tax rev- ensure that the redistribution of the tax is enues in Latvia, it can be concluded that performed in favour of the local govern- it was 10.7 % in 2009, in 2010 – 12.3 %, in ments. In 2004, the personal income tax 2011 – 14.4 %, in 2012 – 14.2 %, and in revenue distribution between the state 2013 – 13.8 %, and it has a tendency to de- budget and local budgets was respectively crease. However, the real estate tax revenue 28.4 % and 71.6 %; in 2005, it was 27 % and has increased each year; within the period 73 %; in 2006 – 25 % and 75 %; in 2007, under review, it has increased by 66.2 % points. From 2010, residential house are the share of the municipalities increased to taxable as well, that affected the quick rise 79 %; in 2008 it was 80 %, in 2009 – 83 %, in of the tax revenue. It shall be noted that 2010 – 80 %, in 2011 – 82 %, but since 2012, from 2008 to 2011 (inclusive), the ceiling the municipalities receive 80 % of personal for the increase of the real estate tax pay- income tax revenues (LALRG, 2013). ment for the land was set (25 % from the However, the authors’ opinion is that previous year, if there is no change of land personal income tax increase in the mu- use purpose), but since 2012 the decision nicipal budgets differs a lot, as it is influ- on whether to use the ceiling of increase or enced by the level of economic activities not is up to each municipality. both in the territory of the municipality, From 2013, the municipalities have the and in the region. As in accordance with right to issue binding rules determining the law “On the Personal Income Tax” the real estate tax rate from 0.2 to 3 % of the deductions of this tax are transferred the cadastral value of the real estate, while to the budget of municipality, which is Law on Immovable Property Tax provides declared by the workers as their place of that the tax rate may exceed the 1.5 % residence; consequently, a situation arises threshold only in the cases if the real es- that the personal income tax payments are tate is not managed in accordance with the higher in the economically active regions legal regulations (Saeima, 1997). as compared to the municipalities which If the municipality does not issue the are situated in less economically devel- binding rules determining specific tax oped territories. Thus during the recent rates, then in accordance with the Law On years, the problem arises that many people Immovable Property Tax, the following tax work outside the declared municipalities rates shall be applied: Problems of Financial Provision at the Latvian Municipalities in the Tax Policy Context 99
• on land, buildings or parts of the build- functional use associated with living ings, excluding residential buildings (garages, car parks, basements, storage and civil engineering constructions – areas, and utility rooms), if they are not 1.5 % of the cadastral value; used for economic activities, as well as • on residential houses (their parts), on the land of these objects: non-residential parts of buildings that • 90 % of the tax exemptions to the have a functional use of living and individuals, who are granted a sta- other groups of buildings that have a tus of a poor person by the munici- functional use associated with living pality, (garages, car parks, basements, storage • Up to 90 % tax exemptions to in- areas, and utility rooms), if they are not dividuals, who are granted a status used for the economic activities – 0.2– of a low-income person by the mu- 0.6 % from the cadastral value; nicipality; • additional rate of 1.5 % on unprocessed • tax exemption (25 %, 50 %, 75 % or agricultural land, except the land with 90 % of the calculated tax) to the cer- an area less than one hectare, or the tain groups of tax payers determined land having limitations of agricultural by the municipality; activity set by the legal regulations. • tax exemption for the companies of the This additional rate is applied even if special economic zones and free ports the municipality has defined a special according to the Law “On Tax Appli- real estate tax rate on the unprocessed cation in Free Ports and Special Eco- agricultural land in their binding regu- nomic Zones”; lations; • tax exemption for large families 50 % • 3 % of building land cadastral values on the residential house or apartment, on the constructions degrading the and the land, if the family with at least environment, collapsed or threaten- three children are declared at the prop- ing human security, if the municipali- erty. Tax exemption for large families ties have adopted the binding rules may not exceed EUR 427 per year (Saeima, 1997). (Saeima, 1997). Municipalities with their binding regu- Real estate tax, even though it is fully lations may impose the tax exemptions included in the municipal budget, is the envisaged by the Law on Immovable Prop- state tax in Latvia as well. This is the only erty Tax: tax that is administered by the municipal- • 50 % tax reduction for the politically ity itself. It should be noted that the munic- repressed persons on the land and in- ipalities have the right to grant exemptions dividual residential buildings or apart- on the property, which the municipalities ment property (without land) that are may use to promote the business in their in ownership or possession of these territory. So, this is the only tax the local persons at least 5 years, and that is not governments may influence, but only by being used for economic activities; reducing the rate, without the right to in- • on the residential houses (their parts), crease it. parts of non-residential buildings Municipality basic budget receives the that have a functional use of living, payments of the taxes on goods and ser- other groups of buildings that have a vices – lotteries and gambling tax. Lotteries 100 Anita PUZULE, Erika ZUBULE
and gambling tax revenue amount in the state budget. The data reflected in Table municipal budgets is relatively small; 3 demonstrates the total personal income in 2010, it was only 0.49 % of the total tax distribution among the budgets, which local government budget tax revenues, in in absolute numbers represents a steady other years it has been 0.56 % in average. increase of the personal income tax share In addition, the lottery and gambling tax in the local government budgets, and the revenue is more typical for the large city amount of the corporate income tax rev- municipalities, and there are a number of enue in the state budget. local municipalities that do not have this However the authors’ opinion is that tax revenue at all. the increase of the personal income tax Another local government budgets revenues cannot be considered exclusively payments are received from the contri- as an improvement of the situation in butions of the natural resources tax, the area of the municipal financial resources, amount of its revenue in the local gov- because the factors increasing municipal ernment budgets is relatively small. Until expenditures have to be taken into ac- 2010, the natural resource tax was trans- count as well, as the most significant of ferred only to the special municipal bud- them – the inflation – shall be mentioned. get, but since 2010 the municipalities, Moreover, it shall be pointed out that, in which have refused of the special budget, order to maintain interest of the munici- receive it in the basic budget; while the rest palities to develop business on its terri- of the municipalities, as it has been before, tory, it would be appropriate to link the receives it in the special budget. Analys- municipal budget with a tax, which would ing the amount of the natural resource tax be directly linked to the economic activity. transferred to the special municipal bud- In the authors’ view, the corporate income gets it can be concluded that its volume has tax could be the one of the taxes used to increased 2.88 times in the period from distribute part of its revenues to the local 2009 to 2013, as the tax rate was increased; government budgets, as the corporate in- its share in 2013 was 0.78 % of the total come tax revenue is included in the calcu- municipal budget tax revenues. lations of the financial equalization in the From the analysis carried out it can be municipalities. concluded that most of the personal in- As demonstrated in Table 3, the corpo- come tax is transferred to the municipal rate income tax revenues tend to increase budgets, the remaining part stays in the starting from 2011. The ratio between
Table 3 Personal and corporate income tax revenues for the period of 2009–2013, million EUR
Indicator 2009 2010 2011 2012 2013 Personal income tax, total 1030.3 1125.6 1127.2 1240.2 1332.9 of which in the state budget 177.1 221.4 203.2 248.2 265.9 of which in the local government budget 853.2 904.2 924.0 992.0 1067.0 Corporate income tax in the state budget 280.6 159.6 279.0 346.9 362.5 Source: formed by the authors using Treasury Republic of Latvia (2013). Problems of Financial Provision at the Latvian Municipalities in the Tax Policy Context 101 the share of the personal income tax to Conclusions be transferred to the state budget and the corporate tax revenues remains stable The revenue structure of the municipal starting from 2011, no drastic changes basic budget does not indicate the suf- are observed. As the ratio is at the level of ficient independence of the financial 0.63 to 0.73, it can be concluded that both resources available for the local govern- the personal income tax revenues and the ments, since more than a third of the total corporate income tax revenues are equally revenues yet is comprised by the payments important. Altering the corporate tax re- received. If the state suspends transfer distribution ratio in favour of the munici- payments, the local government revenues pal budgets, it is necessary to adjust the would abruptly decrease, as currently the personal income tax distribution ratio in municipalities have limited possibilities to favour of the state budget. raise additional funds. As previously concluded by the au- In Latvia, the municipal budget re- thors, as there are countries where part of ceived 19.3 % of the total tax revenues in the corporate income tax is transferred to 2012, thus presenting the eighth best re- the municipal budgets, this good practice sult among the EU–28 countries (Euro- example could be applied in Latvia as well. stat, 2014). The main taxes constituting In Latvia, this issue is studied by B. Pule more than a half of the municipal budget and I. Leibus (2014) proposing options for revenues are a share of the personal in- the income tax redistribution between the come tax and the real estate tax. As well, state and local budgets. One of the risks the local government budget tax revenues related to the redistribution of the income are constituted by the deductions from the tax revenues to the local budgets is that it lottery and gambling tax, and the environ- may cause the decrease of the state budget ment tax. However, it shall be pointed out revenues. To increase the local budget rev- that all of those are the state taxes, hence it enues, the redistribution shall not have an signifies that legally in Latvia no municipal adverse effect on the part of the state bud- taxes exist. get revenue. As regards the property taxes, the tax As it is recognized by M. P. Santiago revenue distribution proportions between (2007), there is no single model for the tax the state and municipal budgets and the redistribution between the state and local rights provided to the local authorities to budgets in the world. Each country shall determine the taxable base, rates, and ex- have different redistribution, rates, exemp- emptions differ in the EU countries. 100 % tions, and other aspects. Each territory of the property taxes are transferred to the has to find its own best solution for the municipal budgets in Bulgaria, Estonia, regional provision with sufficient financial Latvia, Lithuania, Poland, and Slovenia. resources. The local governments in Estonia, Lithu- The authors recommend the Ministry ania, and Poland have the most rights to of Finance of Latvia to develop a meth- influence the amount of property tax. It odology for reallocation of the corporate shall be noted that none of these coun- income tax revenue between the state and tries provide the right to determine the local budgets on the basis of the location of taxable item. In Latvia, the local govern- company’s economic activities. ments may only determine tax exemptions 102 Anita PUZULE, Erika ZUBULE
in accordance with the amounts stipulated From 2013, the municipalities have the by the law. rights to issue binding regulations deter- Some countries have established mu- mining the immovable property tax rate nicipal rates for the personal income tax in amount of 0.2 to 3 % of the cadastral and the corporate income tax; in other value of the real estate; however, at the countries, a proportion deductible to the same time, the Law on Immovable Prop- municipalities is defined, still it differs erty Tax determines that the tax rate may significantly. In comparison, since 2012, exceed the 1.5 % only in the cases, if the the share of deductions of the personal in- real estate is not managed in compliance come tax to the municipal budget is 80 %, with the procedures prescribed in the legal which is big enough in comparison with enactments. Likewise, the exemptions other EU countries. 100 % of the corporate may be determined in accordance with income tax is transferred to the national the amounts stipulated by the legal regula- budget. tions. This is the only tax administered by The largest share of the tax revenues the municipalities; the right to influence transferred to the total municipal budget tax rates are set forth in the national leg- is comprised of the personal income tax islation. The possibility shall be considered (85 % in 2013), the real estate tax (14 % in to pass on this tax completely to the mu- 2013), while other taxes constitute around nicipalities transforming it into the local 1 %. The personal income tax deductions tax that will provide the municipalities are transferred to the budget of munici- with possibility to regulate tax rates and to pality, which is declared by the workers as plan budget revenues. In order to maintain interest of the their place of residence; consequently, a municipalities to develop business on their situation arises that the personal income territory, it would be appropriate to link tax payments are higher in the economi- the municipal budget with a tax, which cally active regions as compared to the would be directly linked to the economic municipalities which are situated in less activity. In the authors’ view, the corporate economically developed territories. Thus income tax could be the one of the taxes to the problem is identified that many people be used to distribute part of its revenues work outside the declared municipalities to the local government budgets, as the using the infrastructure services of other corporate income tax revenue is included municipality. Therefore, to ensure that the in the calculations of the financial equal- municipalities could maintain infrastruc- ization in the municipalities. The Ministry ture in good quality, some part (in average of Finance of Latvia shall develop a meth- 1–2 %) of the personal incomes of the peo- odology for reallocation of the corporate ple employed in the municipal institutions income tax revenue between the state and and enterprises shall be transferred to the local budgets on the basis of the location of municipal budgets. company’s economic activities. Problems of Financial Provision at the Latvian Municipalities in the Tax Policy Context 103
References
1. Boboc, R. M., Alecu, I. I. (2013). Financial Pack- 13. Saeima (1995a). On Local Governments Budg- ages for EU Member States after the Moment of ets. Internet Access:
Anita PUZULE, Erika ZUBULE Latvijos savivaldybių finansavimo problemos mokesčių politikos kontekste Santrauka
Vietos valdžia yra sudėtinė viešojo administravimo Lietuvoje, Lenkijoje, Slovėnijoje. Savivaldybės Es- dalis, o savivaldybių finansai – svarbus jų egzista- tijoje, Lietuvoje ir Lenkijoje turi daugiausiai įtakos vimo, plėtros ir sėkmingo funkcionavimo pažangos nekilnojamojo turto mokesčio dydžiui. Pažymėtina, užtikrinimas. Efektyvus finansų naudojimas yra jog nė vienoje iš šių šalių nesuteikiama teisė pačiai ypač svarbus Latvijos savivaldybėms dėl vis didėjan- savivaldybei nustatyti mokesčio dydį. Kai kurios čios kokybiškų paslaugų paklausos ir aukšto socia- šalys nustatė savivaldybių gyventojų pajamų mokes- linio-ekonominio lygio. Šie veiksniai lemia poreikį čio ir pelno mokesčio tarifus; nors kitose šalyse yra plėsti ir gerinti savivaldybių finansavimą, taip pat apibrėžta savivaldybėms tenkanti mokesčių dalis, ta- spręsti problemas, susijusias su savivaldybės finan- čiau ji vis tiek labai skiriasi. Pavyzdžiui, nuo 2012 m. sinių išteklių formavimo ir naudojimo tobulinimu. Latvijoje iš surinkto gyventojų pajamų mokes- Tyrimo tikslas – įvertinti aktyvų mokesčių politikos čio į savivaldybės biudžetą atskaitoma dalis siekia naudojimą, siekiant užtikrinti savivaldybių finansa- 80 proc., o tai yra pakankamai daug, palyginti su ki- vimą Latvijoje. tomis ES šalimis. 100 proc. įmonių pelno mokesčio Tyrime naudojami šie metodai: monografinis pervedama į valstybės biudžetą. aprašomasis metodas, statistiniai ekonominiai me- Didžiausią dalį mokestinių pajamų, perkeltų į todai, loginio konstravimo metodai. Metodologiniai bendrą savivaldybės biudžetą, sudaro gyventojų pa- klausimai analizuojami remiantis Latvijos ir užsienio jamų mokestis (2013 m. – 85 proc.), nekilnojamojo autorių moksliniais straipsniais, publikacijomis, sta- turto mokestis (2013 m. – 14 proc.), kiti mokesčiai – tistiniais duomenimis bei teisės aktais. tik apie 1 proc. Gyventojų pajamų mokestis yra Tyrime teisiniu ir praktiniu požiūriu vertinama pervedamas į tos savivaldybės biudžetą, kurioje Latvijos savivaldybių biudžeto pajamų struktūra, darbuotojas yra deklaravęs savo gyvenamąją vie- analizuojamos savivaldybės biudžeto pajamos ir tą. Iškylą problemų, kai daugelis žmonių dirba už pateikiami Latvijos vietinės valdžios finansavimo deklaruotų savivaldybių ribų ir naudojasi visa inf- tobulinimo siūlymai. Buvo padaryta išvada, kad rastruktūra ir paslaugomis kitoje savivaldybėje. pagrindinio savivaldybės biudžeto pajamų struktū- Siekiant užtikrinti, kad savivaldybės išlaikytų gerą ra neparodo pakankamo savivaldybėms prieinamų savo infrastruktūros kokybę, dalis (vidutiniškai finansinių išteklių savarankiškumo, nes daugiau 1–2 proc.) surinkto gyventojų pajamų mokesčio nei trečdalį visų pajamų vis dar sudaro gaunamos iš asmenų, dirbančių savivaldybės institucijose ir įmokos. įmonėse, turėtų būti perkelta į savivaldybių biu- 2012 m. Latvijoje savivaldybės biudžetas gavo džetus. 19,3 proc. visų mokestinių pajamų. Tai yra aštuntas Nuo 2013 m. savivaldybės turi teisę priimti pri- geriausias rezultatas tarp 28 ES šalių. Pagrindiniai valomus reglamentus, nustatančius nekilnojamojo mokesčiai, sudarantys daugiau nei pusę savivaldybės turto mokesčio tarifą nuo 0,2 proc. iki 3 proc. nuo biudžeto pajamų, yra gyventojų pajamų mokestis ir kadastrinės nekilnojamojo turto vertės; tačiau ne- nekilnojamojo turto mokestis. Savivaldybių biudžeto kilnojamojo turto mokesčio įstatymas numato, kad mokestines pajamas taip pat papildo loterijų ir loši- mokesčio tarifas gali viršyti 1,5 proc. ribą tik tais mų mokesčiai bei aplinkos mokesčiai. Tačiau reikia atvejais, kai nekilnojamasis turtas valdomas nesilai- pabrėžti, kad visi šie mokesčiai yra valstybiniai, o tai kant teisės aktuose nustatytos tvarkos. Taip pat gali reiškia, kad oficialiai Latvijoje savivaldybių mokesčių būti nustatytos išimtys, kurių dydžius numato na- nėra. cionalinė teisė. Turėtų būti apsvarstyta galimybė vi- Kalbant apie turto mokesčius, mokestinių paja- siškai perduoti šį mokestį savivaldybėms, pakeičiant mų paskirstymo proporcijas tarp valstybės ir savi- jį į vietos mokestį, kuris leistų reguliuoti mokesčių valdybių biudžetų bei teisių, suteiktų vietos valdžios tarifus ir planuoti biudžeto pajamas. institucijoms, mokesčių dydžiai ir išimtys ES šalyse Siekiant išlaikyti savivaldybių susidomėjimą plė- skiriasi. 100 proc. turto mokesčių į savivaldybių toti verslą jų teritorijoje, būtų tikslinga susieti savi- biudžetus skiriama Bulgarijoje, Estijoje, Latvijoje, valdybės biudžetą su mokesčiu, kuris būtų tiesiogiai Problems of Financial Provision at the Latvian Municipalities in the Tax Policy Context 105 susijęs su ekonomine veikla. Autorių nuomone, skaičiavimus. Latvijos Finansų ministerija turėtų įmonių pelno mokestis galėtų būti vienas iš tų mo- parengti pelno mokesčio pajamų perskirstymo tarp kesčių, kurio surenkama dalis būtų skiriama į savi- valstybės ir savivaldybių biudžetų metodiką, atsi- valdybių biudžetus, nes pelno mokesčio pajamos yra žvelgiant į tai, kurioje savivaldybėje įmonė vykdo įtraukiamos į savivaldybių finansavimo išlyginimo savo ūkinę veiklą.