THE COMPANY'S INSOLVENCY IMPACT ON TAX COLLECTION PROCESS

Abstract

Tax revenues are the key source of finance for the government’s budget. The state administration redistributes and allocates tax revenues for performing the state’s basic functions in order to ensure the overall development of the country and its population’s wellbeing. The availability of credit resources declined owing to the global crisis 2007-2009, which negatively affected the growth of Latvia’s national economy, and the total tax revenue decreased by 26.80% in 2009 compared with 2008. Latvia’s government, to secure the financing of its budget, stabilise Latvia’s financial system, raise the country’s competitiveness, borrowed in foreign financial markets EUR 4.5 billion. The present research examined Latvia’s economic development and tax collection dynamics after Latvia’s restoration of independence and its accession to the European Union and assessed the effects of the global crisis on the solvency of enterprises and tax revenues and how Latvia contributed to the foundation of new enterprises and the improvement of the business environment. Research methods employed: the monographic method was used to examine, assess and analyse literatures and legal acts, describing findings and interpretations; statistical observation, compilation and grouping of information, calculation of statistical data, analysis of causal relationships and data generalisation; logical analysis and synthesis. The graphic method was employed to show the relationships identified and their nature and form. The logical and constructive methods were used in analysing results and making judgements. The present research found that the insolvency of companies significantly affects the tax collection process and reduces total tax revenues. In 2013, a tax debt of EUR 267.59 mln was written off in Latvia because tax payers were liquidated, while in 2014 taxes totalling EUR 1 263.63 will not be potentially collected. The authors presume that research on the effects of company insolvency on tax revenues has to be continued in order to improve tax collection and design tax policy instruments aimed at restoring the solvency of enterprises facing problems.