Statistics of the micro-enterprises

13,354 companies have become micro-enterprise taxpayers in less than a year

The report revised by the government on Tuesday shows that 13,354 companies have chosen to become payers of this tax from introduction of the micro-enterprise tax in Latvia on 1 September 2010 to the end of July of this year.

The report states that 35,960 new taxpayers have been registered in total from 1 September 2010 to 31 July 2011. Out of these taxpayers, 13,354 have been registered as micro-enterprise taxpayers.

775 of micro-enterprise taxpayers are individual merchants, 196 – individual enterprises, farms or fish farms, 8,871 – limited liability companies (SIA), and 3,512 – economic operators.

Overall, LVL 2.38 million have been collected as micro-enterprise tax from the moment the tax was introduced in the last September to the end of the first quarter of this year. Out of those, LVL 12,930 have been collected for the last September, LVL 375,080 – for the last quarter of the previous year, and LVL 1.997 million – for the first quarter of this year.

In the first quarter, 19,322 employees were employed by micro-enterprises, and the estimated average monthly income of employees was LVL 323. However, in the second quarter of this year, 24,701 employees were employed by micro-enterprises, and the estimated average monthly income was LVL 341.

In 1.1 % of the cases regarding the estimated micro-enterprise tax for the first quarter of 2011, it was found that the criteria had been exceeded. Drafters of the report add that in the event of failing to fulfil any of the provisions of the Law, a micro-enterprise taxpayer loses its status starting from the beginning of the next taxation period.

As of 31 July 2011, 2,976 or 22 % of the total micro-enterprise taxpayers had a debt exceeding LVL 1. The total amount of the debt is LVL 836,800. Among these taxpayers, 2,567 or 86 % of tax debtors have a debt of more than LVL 10, and the total amount of the debt is LVL 835,300.

Authors of the report conclude that in total the average payment per one micro-enterprise taxpayer is estimated as relatively low compared to the average level of salaries. However, the report acknowledges that the amount of tax payments directly depends on the turnover of a company, and a trend for the amount of the tax to increase on average per one taxpayer can be observed. Therefore it is possible that the average amount of tax payments has not become steady yet, because the majority of taxpayers are newly-established economic operators the turnover of which should increase over time.

Also, several problems have occurred along with the introduction of micro-enterprises. For example, taking into account the relatively low payments into the special budget of state social insurance, a more limited range of state social insurance services is available to the employees of such enterprises. The micro-enterprise taxpayers also lack the motivation to expand business, because in such case they may no longer be entitled to the status of a micro-enterprise taxpayer.

In addition, the report indicates that the limitation of the monthly salary up to LVL 500 might prevent the attraction of higher-skilled specialists.

It has also been observed that the existing enterprises optimise their structures to comply with the requirements for the status of a micro-enterprise taxpayer, thus reducing tax payments. For example, a portion of employees are laid off, but the rest are employed illegally, or the existing enterprise is divided in two or more micro-enterprises, etc. It promotes unfair competition and deforms the market as in the case of ‘grey economy’.

Authors of the report point out that it is envisaged to prevent some of these negative aspects by making amendments to the respective Law and other regulations where necessary.

The representatives of the Ministry of Finance (FM) announced in the government meeting that new amendments to the Micro-enterprise Tax Law are being drafted at the moment to prevent the possibility to “optimise” taxes at the expense of the micro-enterprise tax. The FM stated that it is also planned to limit the possibilities of large companies to separate individual units, thus creating small enterprises which can be registered as micro-enterprise taxpayers.

The Prime Minister asked to submit these amendments to the government as soon as possible. The FM promised to do it within two months and indicated that the draft law would not be advanced in the framework of the state budget package of the next year, but separately.

It has already been reported that the Micro-enterprise Tax Law introducing the status of a micro-enterprise taxpayer came into force last September. This status can be obtained by small companies, if they comply with several requirements. And if the company is entitled to the status of a micro-enterprise taxpayer, it pays 9 % of the turnover in taxes, and this payment includes the Personal Income Tax, social insurance contributions, etc.