Introduction of Corporate Income Tax Deferral As an Essential Factor for Economic Development of Latvia

Abstract

The study considers feasibility of introduction of corporate income tax deferral until distribution of enterprise profits aimed to accelerate economic growth, increase budget revenues and raise welfare of the population of Latvia. The study analyses the effect of introduction of corporate income tax deferral until distribution of enterprise profits considering the experience of Estonia, where this strategy has been implemented since 2000. The study provides comparative analysis of some indicators on micro and macro levels, such as entrepreneurial activity, tax revenue and foreign direct investment in Estonia and Latvia for the period of twenty years. As a result of the analysis, the authors reveal the effect of the introduction of the corporate income tax deferral until distribution of enterprise profits on the Estonian economy on the level of enterprises and on the macro level, as well as the strength and duration of the effects of the 2000 tax reform in Estonia. The authors have also made a forecast regarding possible additional growth of GDP and budget revenues in Latvia in case of introduction of corporate income tax deferral until distribution of enterprise profits. It has been concluded that the increase in additional budget revenues is a secondary effect, which depends on the qualitative and quantitative growth of the enterprises and investment activity of the enterprises and individuals (investing in enterprises). The study shows the reasons for additional growth of GDP and budget revenues in Latvia in case corporate income tax deferral is introduced.