Taxation policy is one of the main instruments which can affect some national economy sectors, ensure development of any territory by special provisions in tax laws. The current Latvian tax policy is mainly based on the continuation of the tax policy followed since the tax reform of 1995, generally the system goal was to ensure capital inflow and capital market activities, with the aim to increase foreign direct investment and promote the development of the national economy. Research of the current status of taxation policy and quality of the state budget revenue sources enabled to suggest some short run solutions. As main result of the paper proposals on the Introduction of special R&D tax regime, including intellectual property income (royalty) regime and Introduction of special tax-free reserves for investments are offered. Research is based on traditional economic science methods, including comparative analysis and practical experience of tax policy implementation. Implementation of prepared recommendations gives a premise to ensure competitiveness of Latvian tax system.