Latvia’s government approved a plan to cut the value-added tax by 1 percentage point from July to slow inflation as the nation seeks to qualify for euro adoption.
The sales levy will be cut to 21 percent to match the level in neighboring Lithuania and help competition in the region, the Finance Ministry, based in the capital, Riga, said today in a statement on its website. Latvia raised VAT from 18 percent in 2008 as budget revenue faltered amid a recession.
The Baltic country, which exited a 7.5 billion-euro ($9.6 billion) bailout from a group led by the European Union and the International Monetary Fund in December, is seeking to adopt Europe’s common currency in 2014. To do so, countries must meet inflation, interest-rate, budget-deficit and debt targets.
Inflation must be within 1.5 percentage points of the average in the three EU countries with the lowest rates, making the current threshold 3.1 percent. Latvia’s rate was at 4.1 percent in March.
The government is also planning to gradually reduce the personal income tax to 20 percent by 2015 from 25 percent now, the Finance Ministry said. The tax will be cut 1 percentage point starting next year, it said.
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