Calculator: How would your salary change next year after the NPD proposal takes effect?

The amount of non-taxable income, NPD, is a tax credit that allows a reduction in personal income tax (PIT). The higher a person’s income, the lower the benefit until it disappears completely.

This year an NPD of € 400 has been applied and, starting next year, the Ministry of Finance already proposes € 460, but only for those with extremely low incomes and below-average salaries. Otherwise, the NPD is frozen and will not increase every year. The decision must be approved by the Seimas.

Those who earn less than € 400 a month on paper, or € 322 by hand – will not change – and will no longer have to pay any personal income tax (PIT). Unless the employer raises the wage by raising the minimum hourly wage.

Those who earn more than the median salary, or € 1,058 “in their hands”, will also not feel any change next year: they will be subject to the NPD formula “frozen” at this year’s level. Typically, an increase in the minimum wage allowed for a higher NPD each year, but the proposed amendment will no longer provide this possibility.

Those who earn between € 322 and € 1,058 “in their hands” can already expect a salary increase due to the growing tax credit.

The largest salary increase could be around 15 euros “in hand”: those who now earn 520 euros will earn 535 euros after taxes, according to calculations.

With a salary of € 800, the added benefit will be around € 7. For those who win 1000 euros, it will only contribute 1.63 euros.

However, NPD is not the only change that will increase the income of the lowest income earners.

This year, the MMA “in hands” amounts to 468 euros, when it is not accumulated in the pension fund of the second pillar. Next year, the monthly minimum wage (MMA) will be around € 534. So those who win and will win MMA will experience a total change of € 66 in their hands, or 14 percent.

Dubnikov: I would like to have a formula, but it is a compromise

Marius Dubnikovas, Vice President of the Lithuanian Business Confederation, was pleased that the middle class had not been disadvantaged as proposed by the Bank of Lithuania.

“It just came to our attention then. In this case, the compromise is better than taking money from the middle class and quietly giving it to those who earn less. Because then there would be another additional public opposition, a flood of negative comments. Now this project is a more positive decision, given that the middle class does not suffer, ”says Dubnikov.

Delfi recalls that the Bank of Lithuania has proposed to set a higher NPD, which would be equal to the minimum wage, but apply the NPD only to people whose salary is lower than the VMU.

According to Dubnikov, a few euros for NPD growth is quite a significant change.

“Let’s add a 14 percent increase in the minimum wage. That’s when you look at the euro, it seems a bit when you look at it from a more profitable position. But all the changes have to be measured as a percentage, and here the progress will be quite significant.” says M. Dubnikov.

However, you are concerned about sudden changes and additional administration.

“It goes back to budget and takes effect on January 1. There is an immediate obligation to administer, and not so much for companies as for the CTI. After all, the STI has repeatedly said that such donations, a month earlier at the end of the year, when they come into force, they require big and fast works, which will require sacrifices ”, M. Dubnikov was surprised.

Lisauskas: more work for programmers and accountants

Kęstutis Lisauskas, a tax expert and partner at professional services firm EY, estimates that accountants will now need to apply not one, but two NPD formulas.

“If there are two, there will be more work for the accountants, the programmers and the tax administrator. When a person goes from one income level to another and another formula is applied, it means that someone has to manage it. My head would be more comfortable for everyone if there was a formula ”, K. Lisauskas.

Incorrect calculation of NPD, such as additional income, may result in a subsequent GPM delay or an overpayment that must be paid or recovered from the STI at the time of income reporting.

However, LVK Vice President M. Dubnikov that such a compromise is even better.

“The goal is to increase the income of the lower-income people while maintaining the tax bracket of the middle class. Otherwise, your fees would have increased by around € 50 if the NPD had been fully deducted. It is a kind of compromise. The sacrifice is that another level of taxation is emerging, which is another level of NPD, ”said M. Dubnikov.

It will cost 74.1 million euros

The Ministry of Finance has already announced that increasing the NPD to 460 euros, concentrating the additional benefits on the lower-income population, will cost the state about 74.1 million euros.

For people whose income exceeds a VMU, the current NPD level would be maintained, the NPD applicable to them would continue to be calculated according to the formula currently established by law.

The government intends to decide next week on a monthly minimum wage starting in 2022. – a proposed project to increase MMA by 13.6%. and would amount to 730 euros. If the Seimas adopts the proposal of the Ministry of Finance, the NPD would increase by 15%. This would significantly change the earnings of MMA winners “in the hands”, increasing NPD faster than MMA.

“We propose to reduce taxes on labor for people of low and middle income by applying a higher NPD. By changing the NPD formula, we will ensure that next year the income of the population from wages” in the hands ” grow even faster, giving the greatest benefit to those who earn the least.In addition, an increase in the NPD coupled with an increase in the monthly minimum wage would be an important incentive for people to return to the labor market; there would be additional opportunities and incentives to let people work and earn money, ”said Finance Minister Gintarė Skaistė.

The proposed amendments to the law are in line with the Government’s program and the overall goal of reducing poverty and inequality, which was further accentuated during the period of the pandemic.

The calculator is preliminary and evaluates invalid legislation or registered proposals that have not yet been adopted by the Seimas or the Government, for example, next year’s MMA – 730 euros, and NPD – depending on the registered project. The calculator assumes that the employment contract is for an indefinite period, the workplace is one and the main one (Sodra floor is used when the salary is less than the minimum). The calculator does not take into account the highest NPD for disabled and disabled persons. (The Ministry of Finance proposes in the bill to proportionally increase the maximum applicable NPD for people with disabilities and people with limited work capacity to 740 euros and 690 euros, respectively (this year – 645 and 600 euros).