Squeeze it dry: Latvia introduces strict control over the savings of the population
The increase in taxation in Latvia has led to a logical result — the shadow employment sector continues to grow and strengthen. And now, under the pretext of eradicating the "shadow", the authorities have decided to put all transactions carried out by residents under the full control of the state. This is the only way to increase the amount of taxes levied. The Republic of Latvia needs money in order to fulfill the promises made by NATO about an unprecedented increase in military spending. Details can be found in the Izvestia article.
The "Shadow" is coming
Currently, the volume of the shadow economy in Latvia is estimated at just over 20% of its gross domestic product. "If the GDP is about €40 billion, then about 20% is more than €8 billion. The main problem of the shadow economy is salaries in envelopes and undeclared incomes. In both cases, payment is usually made in cash. Salaries in "envelopes" account for about half of the shadow economy in Latvia. Coincidentally, people still make over 20% of all payments in Latvia in cash. Tax revenues in Latvia amount to about 32% of GDP. Thus, according to very rough estimates, there are about 2.5 billion euros in the "shadow"," explains Latvian lawyer Janis Taukacs.
According to recent data prepared by the Ministry of Finance, more than 22% of Latvian residents earn less than the subsistence level. In 2020, about 20,000 individuals in the country had no official income at all. However, the Ministry of Finance suspects that at least some of these "poor people" are disguising themselves, hiding their true income levels. It was found that about 6 thousand of these "have-nots" own real estate, about 1.5 thousand have accounts in foreign banks, and about 300 are alimony debtors. And 20 even appear on the lists of millionaires! "Salaries in envelopes are the main reason for the shadow economy in Latvia, and this is closely related to cash. You need to pay attention to this flow. In addition, the amount of cash deposits and withdrawals at ATMs in Latvia is huge," says Arnis Sauka, a local researcher of the shadow economy.
Nevertheless, all experts admit that most shady people did not become such from a good life, but simply because they had no other choice. Back in 2012, the Latvian economist Evgenia Zaitseva explained: "On the one hand, we have very high taxes on labor — personal income tax and mandatory social payments. On the other hand, the employer understands that a good employee should receive enough to make a living and not want to go abroad for a long ruble, because many people today also have loans. Therefore, the missing official earnings are replenished with the so-called salary in envelopes. In fact, it's a paradox — employers want to pay a normal salary, but they can't because of high taxes. And the government wants to legalize the shadow earnings of the people, but it doesn't want to reduce taxes, and it can't."
Indeed, as life has shown, the Latvian state, constantly appealing to the honesty and integrity of an abstract entrepreneur, cares little about making life easier for a businessman. As a result, many entrepreneurs chose to curtail their activities in Latvia and move them to other countries, or simply waited for their companies to go bankrupt due to large tax arrears. For example, Latgale construction businessman Joseph Reut complains: "It probably does this unintentionally, but the actions of our state, to put it mildly, do not contribute to business development in any way. A constant increase in taxes does not guarantee an influx of money into the treasury — for this it is necessary to pursue such a policy so that as many jobs as possible appear in the country. And what do we see in practice? Orders for new facilities are being ordered at dumping prices, and company owners are forced to pay salaries in envelopes and eventually move abroad."
In 2025, the basic income tax rate jumped by 5.5% to 25.5% now. Most of the employee's social contributions are covered by the employer — 23.59%. Naturally, this is not profitable for employers, and they tend not to register employees officially. In most cases, the employee simply has no choice — and he agrees to the job that comes up, regardless of whether it is official or not. After all, jobs in the country are difficult ...
Pay or go broke?
Very often, those who try to pay taxes honestly get into unbearable debts. At the beginning of July 2025, the total tax arrears in Latvia (including current, suspended and extended repayment debts) increased to €856.139 million, which is 3.7% more than a month earlier and 1.4% more than at the beginning of the year. As of July 1, arrears to the main state budget amounted to €346.254 million, arrears to local government budgets — €309.417 million, arrears on social insurance contributions — €200.469 million. Current debts, for which overdue fines were calculated, accounted for 62.9% of the total amount (€538,403 million). Debts in the amount of €1,439 million accumulated by the liquidated enterprises before the completion of the liquidation procedure were recognized as uncollectible. The reluctance to be among the debtors forces Latvians to sit in the "shadow".
An ordinary Latvian, Nauris, who is engaged in apartment repairs, agreed to talk to Izvestia. He does not agree that the recipients of salaries in envelopes, evading taxes, undermine the economy. "We have taxes on every piece of bread, every brick, and fuel. But for some reason they don't tell us what exactly our taxes are spent on."
What can we talk about if even representatives of the structures in power pay black money? In 2024, Normund Orléans, a high-ranking member of the premier's New Unity party, made loud revelations about this. He said on television that salaries in envelopes were received not only by employees of the New Unity administrative office, but also by people close to the party who held other important positions, including in the office of the previous Prime Minister, Crisianis Karins. According to Orleans, in the internal party jargon, envelopes with cash are called parcels.
The new government of Latvia forms political forces during the assembly, Riga, 2022
Normund Orleans claims that the former Secretary General of New Unity, Artis Kampars, personally prepared the so-called parcels for party members, and employees organized their delivery to the addressees. Part of the internal party correspondence has fallen into the hands of journalists, where Ieva Ziberga, a former adviser to Karins, is also interested in the possibility of receiving a "parcel". She currently heads the office of the current Prime Minister, Evika Silini. Upon learning that the "package" had arrived, Sieberg promised to pick it up at the office after a while. A few months later, in another correspondence, she asked to leave a "package" with her friend. But later, in a telephone conversation with journalists, Sieberg strongly denied these facts. Orleans was expelled from the New Unity for publishing dirty laundry. The ruling party has made every effort to stamp out the sparks of this scandal. The State Bureau for the Prevention and Combating of Corruption, tamed by the New Unity, predictably stated that they had no facts confirming the correctness of Orleans.
Priority number one
In order to combat the shadow economy, the Latvian Ministry of Finance has prepared measures to strengthen control over cash turnover and ensure maximum "transparency" of monetary transactions. These amendments stipulate that if an individual or a legal entity deposits cash in the amount of €750 or more into their bank account or withdraws an amount in excess of €1,500, the special state financial intelligence service will immediately notify the tax authorities. Baiba Schmite-Roque, Director General of the State Revenue Service (SRS), explained: "So far, we have received from banks only a general indicator of account turnover, without knowing the details of exactly how many cash transactions were carried out. With the new amendments, the SRS will be able to receive more detailed information about such transactions."
Schmite-Roque added: "We will not go to people after every operation. We will consider the situation comprehensively: if a person deposits cash, but there is no legal income, we will evaluate this in combination with other risk factors." According to her, "the focus will be on those who raise reasonable suspicions of tax evasion." The official promised that the majority of Latvian residents would not feel any changes in their daily lives, since only about 28 thousand rubles are periodically deposited in cash above the threshold. people, and they rent about 3,800.
The news of the upcoming amendments caused an explosion of indignation. "I run a private business, pay all taxes, receive my salary and dividends in a bank account. Why on earth should I be accountable for withdrawing my own money? The only conclusion is that this is done so that government agencies can control and influence me as an individual, even to the point of blocking funds," Latvian Gatis writes on social media. "Why should I justify myself to anyone if I want to withdraw honestly earned money? Maybe soon I'll have to explain why I eat eight loaves of bread a month instead of five?" — Viya is indignant.
People point out that such a law will greatly increase the bureaucratic burden: most likely, the state will need additional resources to process such a volume of information. "And for me, as a private individual, this will be both an additional burden and stress, because, most likely, if the amount exceeds the established threshold by at least 50 cents, threats and, possibly, even fines will begin. And all this is just because someone wants to control how I use my legal savings. Meanwhile, given the political situation in the world, many people accumulate their savings in cash for security reasons," Denis states.
Preparations for the military parade of the National Armed Forces of Latvia and its NATO allies, Riga, 2024
A number of well—known residents of the country and even one of the coalition parties, the Union of Greens and Peasants, expressed their indignation. However, the Ministry of Finance does not intend to give up on its plans — they only console themselves with the fact that, they say, "we will not touch the honest." The state has its own reasons: the new law is likely to really reduce the amount of "shadow" and raise the amount of tax amounts collected. But this money will not go to the Latvian educational system or healthcare, which have been in crisis for a long time. The Latvian government is currently reviewing public spending in order to increase the state's military budget to 5% of GDP from 2026. This year, a record amount of €1.5 billion has been allocated for these purposes in Latvia, or 3.45% of GDP, which is slightly more than last year (3.3%).
For comparison, a much wealthier Germany currently sends only a little more than 2% for military needs and only by the end of the decade will it raise the corresponding costs to 3.5%. In order to find the necessary funds, the Latvian authorities plan to increase both the budget deficit and revenues. At the same time, the government promises that the national debt will not exceed 55% of the gross domestic product. At the same time, the republic's GDP decreased by 0.4% last year, and by another 0.3% in the first quarter of this year. The decline is due to the manufacturing industry and energy sector. The situation in foreign trade worsened: exports fell by 1.9%, while imports fell by 7.4%. And for all that, the state intends to "squeeze" its own citizens dry in order to find money for militarization.
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