[ad_1]
Currently, the standard personal income tax rate (PIT) is 20 percent. It does not apply to the total amount of income, but only to the part obtained by deducting the amount of non-taxable income (NPD). The higher a person’s salary, the lower it will be.
For example, if you earn a minimum wage of € 607 on paper, subtracting € 350 from the NPD and multiplying the difference by 20% would result in € 51.4. GPM payable ((607-350) x0.2 = 51.4).
It is this amount that the salary in the hands is less. However, it is also reduced by contributions to Sodra, which guarantee benefits in the event of illness, loss of employment or retirement.
Lowering the GPM rate would leave more income in the hands of the entire population, and the higher the salary, the more.
If the NPD were increased, then only those who received the lowest wages would pay far less tax. For example, the NPD now applies only to those whose salary does not exceed € 2,665 on paper or around € 1,613 on hand.
In any case, a lower tax means more money for the population. At the same time, however, there is less revenue in state and municipal budgets, which finance health care, education, and other public services.
The tv3.lt portal asked how economists evaluate proposals to change the GPM.
The effectiveness of the measure is in doubt
However, according to Swedbank economist Nerijus Mačiulis, changing taxes is neither a common practice nor a good practice for solving problems caused by a short-term crisis.
“The government has made the right decision to grant so-called tax credits, that is, permission to pay taxes later without penalty.
The tax system must be improved if we see that it is too complicated, inefficient or socially unfair, but this should not be limited to short-term economic fluctuations, “says the economist.
According to him, the reduction in GPM would have a positive impact on the purchasing power of the population, but those who did not lose their jobs would benefit. And the population most affected by the coronavirus would feel no benefit.
“Currently the focus is still on focusing on job retention, social security for those who have lost their jobs, and recycling if necessary,” says Nerijus Mačiulis.
According to the economist, Lithuania’s budget deficit will reach some 3.5 billion euros this year, at least as much as the state will have to borrow. However, even if debt conditions remain favorable, this does not mean that we have unlimited financial opportunities to stimulate the economy.
Reduction of GPM offers next year
Tadas Povilauskas, economist at SEB Bank, says that reducing the GPM rate is a common measure. It is used by states to increase household consumption and accelerate economic growth or mitigate the recession.
“However, during this crisis in the world, this measure still ‘stays in a drawer’, because the current crisis is different. Consumption stopped because people, especially at the beginning of the quarantine, did not have many opportunities to consume since most companies stopped operating, therefore, a reduction in GPM would hardly increase real consumption through quarantine.
This crisis started abruptly, so the fastest response chosen by some states is the lump sum. In this way, money reaches a resident much faster, whether they are working or not. The same is being done in Lithuania. A lump sum is paid to self-employed workers.
Also, a reduced GPM rate does not help the employer to address corporate liquidity difficulties. Therefore, compensation for the workplace through the downtime mechanism is much more useful, ”says the economist.
However, according to T. Povilauskas, the measure of reducing the GPM tariff may be useful in the near future, if Lithuania manages to cope with the growth of unemployment and if the quarantine is lifted.
Such a measure would encourage consumption. However, it would encourage the use of those who work but not those who have lost their jobs.
“Therefore, if unemployment continues to rise, it would be better to provide specific measures to help people who have lost their jobs.
I think a measure to increase the amount of tax free income (NPD) would be much more effective. Then, the loss of tax revenue would be less, and the progressivity of the revenue would increase, “says the economist.
Furthermore, according to T. Povilauskas, the GPM is one of the main sources of budget income, therefore, its reduction would further increase the deficit.
“Knowing what incentives the government has launched and how much it will cost, I think there is a slim chance that the proposal to reduce the PIT will be adopted this year. However, when planning next year’s budget, such a proposal or NPD increase, I think , will be considered more seriously, “predicts the economist.
Companies are in favor
The president of the Lithuanian Business Confederation, Valdas Sutkus, claims that lowering the PIT would not only allow employees to earn more, but would also amortize the issue of non-wage growth, which is highly relevant these days.
“Everything has changed dramatically in a few months: if everyone expected wages in the country to rise to 10 percent before the coronavirus pandemic, now it’s only about their reduction.” That is why the reduction of the GPM proposed by the President of the country is a very appropriate and timely measure.
Lowering the GPM would really have a quick effect and would leave more money in people’s pockets from the day the law goes into effect. The extra money would go to the accounts of financially active people. And the increase in personal finances would be wisely spent on additional needs, which would gradually increase the level of the country’s economy, “says V. Sutkus.
According to the employers’ representative, according to the latest data from the European Commission, around 8% of the Lithuanian economy is planned for this year. contraction. And a survey conducted by the Business Confederation in April showed that such forecasts form an extremely negative attitude in companies, forcing them to abandon investment plans and not plan new products or services. And workers are in the dark about job retention.
“The temporary reduction in the PIT should last until the economy returns to the pre-crisis period. After that, it must be evaluated and a decision must be made on whether such a measure can be applied permanently,” says V. Sutkus.
President proposes to reduce GPM
The tv3.lt portal remembers Gitanas Nausėda on May 11. During talks with the majority-ruling leaders and opposition factions of the Seimas, they discussed the need to expand the package of measures to stimulate the country’s economy.
During the talks, the proposal to temporarily reduce the GPM was discussed. According to the President, this would be a socially fair means, generally managed and immediate, to stimulate the economy.
“Promoting positive public and business expectations is crucial to addressing current economic challenges. The temporary reduction in GPM would not only allow employees to feel the benefits, but would also increase the competitiveness of Lithuanian companies. The positive effect of the reduction in GPM it would feel immediately after the adoption of the relevant amendments to the laws, ”said the President.
However, Ramūnas Karbauskis, the leader of the Seimas’ ruling “peasants”, does not support the president’s proposal. According to him, in the face of the crisis, one should not think about how to reduce taxes, but how to increase the income of the population.
“Now it is not necessary to reduce taxes, but to increase income,” said R. Karbauskis.
“Now the problem is maintaining consumption in Lithuania, supporting people’s incomes, and I hope that the recovery of Europe and other countries will allow us not to have a great crisis in exports,” he said.
R. Karbauskis also did not emphasize the figure announced by Finance Minister Vilius Šapoka that state budget revenue in April was around 31.1 percent. (221 million euros) less than expected.
“Part of the tax is deferred. At the moment, to my knowledge, about 350 million. Euro taxes If this money had fallen into the state budget, we would practically not have been left behind,” said R. Karbauskis.
“Deferred taxes for companies really don’t go bankrupt with the help of companies, it really hasn’t happened yet in this situation,” he added.
[ad_2]
