The LAS Institute of Economics submitted its opinion on the new draft cadastral values developed by the Ministry of Justice (Ministry of Justice) and the State Land Service (State Land Service), participating in the public discussion of the draft regulations of the Cabinet of Ministers “Regulations on the Cadastral Value Base for 2022, 2023, 2024 and 2025”.
According to the new methodology, it is planned to increase the cadastral value on average more than 2 times in conditions when housing prices in Latvia have increased more than 1.4 times since 2015 and this is one of the largest increases in the entire EU and OECD countries.
Increasing the cadastral value in many cases will be associated with an increase in real estate tax (hereinafter – RET). According to estimates for commercial properties and production facilities, the RET payment may increase 3-5 times; but in some cases, entrepreneurs are worried that the cadastral value of real estate may increase 10 times, taking into account the methodology set out by the State Land Service.
Thus, by determining the cadastral value of real estate at the market price and raising the tax rate in the current socio-economic situation, additional conditions are created for the mass expulsion of local investors and commercial developers from the state and further increase in unemployment.
In order to eliminate the inconsistency of the new cadastral value calculation regulation proposed by the government with the current situation in Latvia, the LAS Institute of Economics proposes to take several measures:
- To more actively and purposefully involve merchants, teachers, doctors, other residents of the state in the development of tax policy and its implementation;
- To consider the possibility of replacing the currently used calculation method with another known method of determining the cadastral value – after the introduction of the real estate object;
- To develop a socio-economic rationale for each tax reform, revealing the shortcomings and inconsistencies of the current tax system by type of tax;
- To include the reforms to be carried out in the tax system, indicating the year in which they will be carried out;
- Publish in due course, but not later than half a year, an assessment of the existing tax system and a justification for the reforms to be carried out;
- To reveal the possible positive and negative effects of the tax reform to be performed, as well as the positive and negative side effects;
- To show greater self-esteem and respect for taxpayers and other citizens;
- Maintain an active discussion – provide feedback to stakeholders on the forthcoming tax reform and inform the public about the outcome of the discussion.