On Thursday, 5 March, the amendments to the National Real Estate Cadastre Law and the Law on Immovable Property Tax, developed by the Ministry of Justice, were announced in the meeting of State Secretaries, which provide for cancellation of the immovable property tax (IPT) for a primary dwelling, starting as of 1 January 2022, when the new cadastral values will be applied for calculation of the IPT.
Janis Bordans, the Minister of Justice: “The methodology for cadastral evaluation, approved by the government in February of the current year, will ensure that the cadastral values are calculated fairly. We have to achieve that also the IPT is applied the same fairly. The new cadastral values will not be applied as long as the IPT system will not be rebuild!”
Amendments provide that for the primary dwellings with cadastral value up to 100,000 euros there will be no IPT payable. If the value of the dwelling will exceed 100,000 euros, then the IPT would be calculated by deducting 100,000 euros from the value and applying the coefficient 0.2 (special value) for the acquired difference.
Similar proposal is also with regard to the land plot under these dwellings, only in this case the non-taxable minimum would be 10,000 euros. Accordingly, if the value of the land plot is below 10,000 euros, then the IPT payment should be 0 euro, but if it exceeds 10,000 euros, then 10,000 euros should be deducted from it and the coefficient 0.2 should be applied to the remaining amount.
“Every inhabitant has the right to a dwelling owned by him or her. We have to strengthen these fundamental rights and promote availability of dwellings, rather than threaten it. Therefore, we recommend the Ministry of Finance to perform this reform in two stages - at first, guarantee the right of inhabitants to their dwelling and then, in the second half of 2020 to review the rates for other segments, such as merchants, with the purpose not to permit disproportional tax growth," emphasizes J.Bordāns.
Cancellation of the IPT for the primary dwelling is planned for dwellings, including apartments, owned by a natural person, where the person is declared. The draft plans to implement these provisions also with regard to the lease apartments, if the tenant is declared in the leased dwelling and has registered the rights of lease in the Land Register.
J.Bordāns: “Draft laws prepared by us during last summer are based on careful calculations, including on the provisional impact on the municipal income in 2022. At the same time, we would like to make sure on the quality of drafts and in case of need to improve them, therefore we will commence the coordination process thereof already now. I can confirm that indications made by certain politicians on populism rather means lack of knowledge on the processes in economy and political jealousy on the fact that we are able to settle the issues not being settled for years. We have already proved and will continue to prove that we are able to perform things being of real importance for the economy.”
In accordance with provisional calculations of the Ministry of Justice and the State Land Service, the total municipal income from the IPT will not decrease in 202, when comparing with 2018. In case of the most pessimistic scenario, the total income will increase by 14 million euros. Total income from the IPT for dwellings in 2022 could decrease by 33 million euros, but income from the IPT for land - by 14 million euros. At the same time, income will increase from the IPT for buildings. Thus, the total income from the IPT for majority of municipalities, excluding certain regions close to Riga, will increase in 2022. The above-mentioned increase is related to the fact that the cadastral values were reviewed in 2012 for the last time and that the market prices have increased during these years in many segments, as well as that buildings built during the recent 10 years so far have not been properly appraised and the current cadastral values thereof, from which the IPT is calculated, often constitutes only 40 - 50% of the true value thereof.
It should be mentioned that similar practice - allowances for the primary dwellings - is implemented in several European countries. For example, in Lithuania the non-taxable minimum for a dwelling is 220,000 euros, but if the owner has three or more minor children under the care, then the non-taxable minimum is 286,000 euros. In Estonia, the allowance from the IPT is applied for the land under the dwelling up to 1500 m2, but for apartments the IPT is not calculated at all. In accordance with the EUROSTAT data, already now the total volume of the IPT in Latvia significantly exceeds the total volume of tax burden of the neighbouring countries (the total volume of the IPT in Lithuania and Estonia in 2018 was 0.2 % from GDP, while the total volume of the IPT in Latvia is 0.6% from GDP).
At the end of 2019 the initiative signed by 40,518 citizens was submitted to the Saeima regarding cancellation of the IPT for the sole dwelling.
In accordance with the data of the Council of Sworn Bailiffs, there were 5,257 executive cases registered in the record-keeping of the sworn bailiffs regarding recoveries in favour of Riga City Council Municipal Income Department in relation to the debt of the IPT. And these are only the data about Riga in 2019.
The new changes should come into force on 1 January 2020, when the cadastral value base will be applied for calculation of the IPT on the basis of the Cabinet Regulation No. 103 “Regulation of Cadastral Evaluation”. It is possible to become acquainted in more details with the draft law on the website of the Cabinet.