New 10% tax regime to fight shadow economy comes with low threshold and costly rollout

Members of the Saeima are working on a new tax measure that would introduce a 10% tax rate aimed at encouraging small service providers to formalize their work and step out of the shadow economy. However, the investigative program "Nekā personīga" has highlighted several issues that could undermine the effectiveness of this plan.

A low income threshold

One of the main concerns is the low income threshold set for the new regime. This means that only a relatively small share of potential beneficiaries would actually qualify for or benefit from this tax model, potentially limiting its ability to achieve its stated goal of bringing more small service providers into legal operation.

Cost of implementation

To put the new tax regime into practice, the State Revenue Service (VID) will need to update its information systems so they can process the new tax rate and related procedures. This adaptation is expected to cost the agency up to 400,000 euros, raising questions about whether the anticipated benefits of reducing the shadow economy will justify the expense.

The program notes that the combination of a low threshold and substantial administrative costs creates a risk that the new tax tool will fall short of expectations, even though its stated purpose — helping small entrepreneurs operate legally — is considered a relevant one.