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On July 23, the position on the application of NPD in Lithuania was published on the website of the Bank of Lithuania.
It says: “According to the Bank of Lithuania, the current NPD calculation model does not sufficiently exploit the potential of this fiscal measure, so it is proposed to adjust the parameters of the NPD formula: equalize the constant of the NPD formula to MMA and reduce the to the ratio of MMA to the part of VMU greater than MMA: MMA / (VMU – MMA).
The proposed changes would increase the income and incentives of the country’s lowest-income people to seek work, stimulate economic activity, and have a positive effect on reducing regional disparities in living standards. “
The NPD calculation formula applied in Lithuania this year looks like this: NPD = 400 euros – 0.18 * (salary – MMA).
MMA currently stands at € 642 and Vytautas Magnus University at € 1,517.4.
Respectively, earning MMA pays 36.3 euros GPM per month, earning VMU – 191.25 euros GPM, earning 2 VMU (3,034.8 euros) – 455.22 GPM. Mandatory contributions to health insurance, contributions to Sodra and private pension funds are also paid out of wages.
The Bank of Lithuania proposes that the amendments come into force within a few years. In the first year, the NPD formula would look like this: 0.8 * MMA – (MMA / 1.5 * VMU – MMA) * (salary – MMA).
As a result, those who win MMA would have 36.3 euros more in their pockets, those who earn VMU – 8.35 euros more, and those who win 2 VMU would not feel any difference (calculated with the same sizes of MMA and VMU as this anus).
In the second year of change, the formula would look like this: MMA – (MMA / VMU-MMA) * (salary – MMA).
As a result, those who won MMA would remain the same as in the first year: 36.3 euros, those who won VMU would have to pay 36.36 euros more and those who won 2 VMU again would have no change.
On the left – according to salary level, on the right – according to employee percentiles
According to economists at the Bank of Lithuania, equating the NPD with the MMA would increase the wages and incentives of the country’s lowest income people to seek work, stimulate economic activity and have a positive effect on reducing regional differences in living standards.
At that time, reducing the scope of the NPD to VMU, according to economists, would ensure more efficient collection of state budget revenues.
Tax increases – debate
Representatives from the Delfi Finance Ministry said that the Bank of Lithuania’s proposal to change the NPD application scheme is well founded.
“The issue of reducing income inequality will be discussed at the meeting of the working group of tax experts formed at the initiative of the Ministry of Finance on September 29. In the context of this topic, the issue of NPD will also be discussed, evaluating the impact of various alternatives related to the change of NPD, including the one proposed by the Bank of Lithuania ”, he pointed out.
The Ministry of Social Security and Labor did not comment further on the Bank of Lithuania’s proposal.
For their part, the Presidency’s specialists pointed out that due to the change in the NPD formula, employees who accrue from 1 to 2 VMU (would increase their tax burden) would feel the loss of their salary, while the tax burden would not. . change.
“Therefore, this aspect requires a broader discussion, including the conditions proposed by the Bank of Lithuania for the transition period,” the comment said.
However, in the opinion of the president, the NPD should be increased as soon as possible.
“The NPD instrument is one of the good ways to address poverty and income inequality in Lithuania in order to achieve higher welfare for workers. When evaluating the specific proposal presented by the Bank of Lithuania on July 23, it is particularly positive that the NPD should be matched to the size of the MMA.
This is an ambition, because according to data from the Department of Statistics, in 2020, 8%. workers’ income did not reach the risk-of-poverty threshold. In addition, according to the Department of Statistics, working for the minimum wage does not protect against the risk of poverty: after deducting income tax and social security contributions from the minimum wage, disposable income without other sources of income would be by below the at-risk-of-poverty threshold, ”the comment reads.
The presidency also recalled that Gitanas Nausėda has presented another tax incentive related to wages for rapid wage growth for the tax experts to analyze.
“The idea raised by the President on the reform of the Corporate Tax Law provides that those companies whose payroll expenses increase at least 8% per year compared to the previous period could deduct payroll profit three times more than at present . costs in calculating income tax payable. This would reduce the income tax payable for companies that increase wages more quickly or employ more staff. This is very important, considering that in Lithuania about 60 percent. The total income tax is paid by small and medium-sized companies. Furthermore, Lithuania’s gross domestic product has already reached 80%. developed countries on average in terms of purchasing power, but wages in the country are only 60 percent. OECD average.
The president hopes that the discussions of the group of tax experts convened by the Ministry of Finance will end productively in September and that complex solutions for tax reform will be agreed and presented to the public in October, which will be a great advance in the consolidation of stability. and fairness of the tax system in Lithuania.
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