Latvia's Ministry of Finance published an update on its data-driven, targeted approach to reducing the shadow economy, coordinated across institutions and implemented in practice by the State Revenue Service (VID) and other bodies. The ministry pointed to improving indicators, including a falling estimated shadow economy share and narrowing tax gaps, and signalled that the current policy direction will be maintained and refined. The ministry said it assesses trends using multiple research and administrative sources, noting that the shadow economy is not directly measurable and that analysis focuses on longer-term developments and correlations across datasets. Citing the SSE Riga “Shadow Economy Index in the Baltic States”, it reported the shadow economy share in Latvia fell to 22.9% of GDP in 2023 (from 26.5% in 2022) and to 21.4% of GDP in 2024. It also reported narrower gaps in value added tax (VAT) (11.3% in 2021 to 5.4% in 2023), personal income tax (21.3% in 2021 to 15.8% in 2024), and state mandatory social insurance contributions (18.0% in 2021 to 13.8% in 2024). The 2024–2027 plan is being implemented with business organisations and combines regulatory measures, supervision and digital solutions, including greater automation, expanded use of electronic payments, and targeted controls in higher-risk areas, alongside an emphasis on proportionality and reducing administrative burden. Work is set to continue through regular effectiveness reviews and updates to instruments as risks evolve, with sector priorities selected based on objective risk analysis and compliance indicators. The ministry also linked shadow-economy measures to a predictable medium-term tax policy process, referencing a tax policy coordination group active since autumn 2023 and government decisions on a 2025–2027 tax policy review aimed at reducing labour tax burden and increasing net income for around 95% of workers alongside fiscally responsible compensatory measures.

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