Problematic Aspects of Value Added Tax and Improvement Possibilities in Latvia

The research has resulted in the conclusion that an increase in tax revenues promoting economic development may be reached by extending the tax base as well as by applying a selective scientific approach to solving tax problems, especially in agriculture. The hypothesis - Improvement of the tax system in Latvia is necessary to ensure economic development and social justice - emphasises the need for making taxes simple, just, comprehensible, and neutral. The research findings are applicable for improving the regulatory mechanisms to develop individual economic sectors by means of taxes in order to promote sustainability of the national economy in the common EU market. The tax burden has to be differentiated according to income, thus reducing social tension In the country. An improved tax system has to promote the nation's well-being and culture, and emergence of a strong middle class by reducing the proportion of the needy in the society. It shall also prove its great economic and social role in the national economy. The Latvian tax system has to be reformed and improved according to the principle of paying capacity, at the same time national interests have to be taken into account. The amendments to the tax laws include various possibilities for increasing tax revenues, which have to ensure extra tax revenues, i.e. In 2009 the core VAT rate was increased from 18% to 21% and the reduced VAT rate was increased from 5% to 10%. The studies showed that between January and March 2009, the VAT revenues in Latvia have decreased by 30% on average compared with the respective period of the previous year; it means that the VAT rate increase to 21% has not produced extra tax revenues in the government budget. The research methods: comparative examination and monographic methods as well as induction and deduction methods. The research methodology includes the study and analysis of the tax system operation, including the value added tax, in Latvia.