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Environmental taxes should play an important part in environmental policy as they help to internalize externalities, reduce damage, and increase the quality of life; besides they allow raising revenue for national and local governments. Th e aim of this paper is to evaluate environmental eff ectiveness, economic effi ciency, equity impact, administrative feasibility and cost, and political acceptability of environmental (energy, transport, and natural-resource) taxes in Latvia. Th e study is based on desk research. Th e results demonstrate little evidence that existing environmental taxes lead to a signifi cant reduction in environmental pollution and waste fl ows, but they have a signifi cant fi scal eff ect. Most of the environmental taxes in Latvia apply direct and indirect subsidies, but most of the revenue comes from taxes on energy and transport. Environmental tax rates in Latvia are the result of political compromise and are not backed by the research on environmental costs of the particular activity. Th is paper fi lls the gap in environmental policy evaluation by looking at the performance and eff ectiveness of environmental taxes in Latvia.

There are significant losses in tax revenues across the European Union (EU). National governments lose billions of euros in the revenues from non-paid taxes and other illegal activities. The fight against aggressive tax planning, tax fraud and illegal activities is on the agenda of the EU, OECD and all the national governments. However, due to the size of tax losses it should not be treated just as tax evasion, but rather as tax terrorism! Therefore, the author has set criteria when tax evasion should be named as “tax terrorism” as well as designed the principles for tackling tax terrorism and other ways of non-payment of taxes. The tax evasion could be treated as “tax terrorism” in case of international evasion from taxes by organized groups of persons for criminal purposes as well as when it creates significant losses in government revenues. The term “tax terrorism” would have impact to communication and cause response of society and politics, therefore it would have more social and political consequences.