Problematic Aspects and Solutions of Corporate Income Tax in Latvia

Sharply increasing Gross Domestic Product as well as the Gross Domestic Product per capita by implementing a prudent and rational financial and economic policy related to the elaboration and implementation of principles of just tax policy in the interest of the entire population and to the reduction of corruption and. gray economy. in the country are the most important tasks set for the government of Latvia. The proportion of revenues of corporate income tax in the consolidated national budget in Latvia ranges from 4.2% to 8.8%, i.e. quite significantly, over the previous years. The corporate income tax has two major goals: contribution to the government budget and promotion of business activity. The tax has to be effective and just. According to the law of the Republic of Latvia. On Corporate Income Tax., the tax rate is proportional and initially it was 25% of adjusted taxable income. However, since 2004 the rate was changed and set at 15% of adjusted taxable income, which is a quite low rate compared with the average rate in the EU Member States in 2010 (23.2%) and it can be viewed positively (Taxation trends ... , 2010). Irrespective of the relatively low CIT rate, this tax not always serves to the interests of Latvia's small and medium enterprises, as this flat rate is applied to all enterprises (including large ones with the number of employees of more than 250), disregarding the size of profit, and the ability of all enterprises to pay the tax. The paper researches, analyses, and reveals the positive and problematic aspects of CIT, and a comparative analysis of CIT rates in 27 EU Member States was done as well. The authors contribute to a vision of improving the CIT, which has to promote the development of Latvia's national economy.