President’s Proposed Tax Changes Meet Controversy: Potential Threats Identified

One of the proposals is to achieve stability by avoiding tax changes along with the budget, that is, leaving the business for at least 6 months. period to prepare for the change.

Simonas Krėpšta, Senior Advisor to the President and Head of the Economic and Social Policy Group, pointed out in the Monetary Affairs program that in the last 10 years there have been 50 cases of tax increases in December, which came into effect a few weeks later, since January 1. The president proposes to resign her.

Proposes more taxes to employees on individual activities

The second proposal refers to tax justice. It is proposed to tax employees more according to individual activities, for the part of the income that exceeds 35 thousand. 20% would apply. The personal income tax rate (PIT), the same rate would apply to the taxation of dividends, capital gains and other irregular income.

According to S. Krėpšta, the aim of this proposal is to introduce justice so that tax rates do not depend so much on the form of activity, but are more related to the amount of income earned.

“We do not propose to change or increase taxes for those who have an average income or less, but there is a great injustice in our tax system at the moment: a teacher, a doctor, a librarian pays more taxes than a person who earns another form of income. activity, which earns a much higher income, earning capital gains, dividends, and individual activities.

The president proposed a much broader general principle, which includes not only individual activities, but also other passive income, from dividends, capital gains, but only if the income was significant and exceeds 35 thousand. Eur per year, that is, more than three average wages. At that time, a teacher or doctor earning two average salaries pays 20 percent cash. per year ”, says the President’s Advisor.

Krėpšta added that it was a small group of people who took advantage of tax injustice and hurt people who paid their taxes honestly. However, according to him, this tax measure would in no way negatively affect the development of the market, so the tax environment of small dividend recipients would not change.

When asked if there was no other way, to reduce the GPM for all employees, if the tax system wanted to reduce injustice, S. Krėpšta points out that we currently have a tax-free income (NPD), which changes almost every year . According to him, this is a way to reduce the tax burden on employees.

“I have no doubt that next year’s NPD will also increase, and that will mean lower taxes on employees,” says the president’s adviser.

Majauskas: Those who receive higher incomes should also pay higher taxes

Mykolas Majauskas, chairman of the Seimas Budget and Finance Committee, affirms that this proposal has not yet been discussed in the faction. However, he notes that both the Prime Minister and the Minister of Finance have repeatedly stated in public that we must review and correct the existing gaps in the tax system.

“It is a matter of hygiene in the tax system to ensure that those who receive significantly higher incomes also pay higher taxes. Today, there are no objective arguments to explain why an ordinary person, a public sector employee, pays a 20 percent tax on income from employment and a lawyer earns $ 4 million. pay 5% cash. Tax rate. After the allowed deduction, he pays 15%, but it is still significantly less than a teacher, doctor, police officer, ”said M. Majauskas.

He also added that bailiffs, notaries, and lawyers make up the majority of those who charge more than 35 thousand. Profit in euros for the year: “It is not enough to look at a group of lawyers, 83 percent. the lawyers do not state any actual costs, but they use 30 percent. tax deduction rule, thereby automatically reducing your tax income. You need to fill in those gaps. “

Leontief: There can be as much exodus to emigration as to shadow

Elena Leontjeva, president of the Free Market Institute of Lithuania, points out that all matters of taxation of dividends, capital gains and individual activities should be considered, taking into account the origin of the source of income, since a risk is completely assumed different.

“Don’t try to tax people in the hope that everyone will pay the taxes. There is a lot of thought about reducing the shadow economy, and there is also a lot of talk that we must move towards high value added and, at the same time, we want to tax higher value added with higher taxes.

I am afraid that people may not fully agree with that, there may be both an exodus towards emigration and towards the shadows. We have to think about the real reaction of the people ”, says E. Leontjeva.

Offers an earnings advantage for companies that increase wages

In the third proposal, the Presidency offers a profit incentive for companies that could increase wages by at least 8%. S. Krėpšta says that the main objective of the measure is to increase people’s employment and income, so the main beneficiary of this incentive is the person who works.

“This measure is designed to reduce the wage gap between Western Europe and Lithuania. Based on the level of economic development, we have reached around 80 percent. OECD average, but only 60% in terms of wage levels. The income of contract workers are structurally separate from Western Europe.

We are proposing an incentive for those companies that significantly increase their salaries – almost double what was proposed this year – 8%, to obtain an incentive. (…)

The figures show that 60 percent. income tax is paid by micro, small or medium-sized companies. This shows that small and medium-sized companies could take advantage of this benefit by increasing wages, ”says the president’s adviser.

Majauskas: it is wrong to reduce the income tax of large companies

This proposal is criticized by the president of the BFK. M. Majauskas would be extremely careful in reducing any corporate income tax and introducing new benefits, because large companies are more interested in that.

“It seems like a costly experiment with the Lithuanian treasury. Currently, the corporate income tax rate in Lithuania is one of the lowest in the EU. This situation is due to simple reasons: the great influence of companies. big companies in politicians and decisions.In addition, we have a number of corporate tax benefits for cinema, banks, experimental development, investment projects, research.As a result, the effective tax rate is approximately 6 percent.

Also, we have an incentive for small businesses that pay only 5 percent. tariff. Therefore, today the income tax relief would be more relevant for large companies. If we look at who pays income tax at the moment, large companies pay about half of it to the state treasury. If we look at what that big profit is, 40 percent of the top ten. It is made up of banks, energy monopoly company Ignitis, Tele2, Maxima.

These are companies operating in a competitive environment that have the ability to increase rates more than in a competitive environment, make additional profits, and therefore have to pay high income tax. That’s right. It would be a mistake to reduce or abolish the corporate income tax, especially for banks that have a double taxation agreement with Scandinavia and do not pay tax on dividends, ”says M. Majauskas.

Leontief: nice game with advantages

E. Leontjeva also expressed doubts and agrees with M. Majauskas that there are sufficient benefits in the tax system, because its administration is complicated.

“For a company to benefit from research and development, MITAI must demonstrate that it will create a unique product and technology in the world. … Companies often complain that after they are often found to be ineligible for the benefit and are required to repay the amount.

To play with preferences, we must move to a model like that of our neighbors that allows everyone to reinvest the profits without any burden, either in research or development. Companies know better than anyone what investments are needed, private investment will be the most effective.

(…) It is relevant now after the crisis, when companies find it difficult to predict progress and forecast profits. Everything is changing so fast, after the crisis it will be necessary to recover in some way, to reinvest in development, because now many development projects are suspended. It would really be important to allow all companies to invest with the profits, ”says E. Leontjeva.

In January of this year, a group of tax experts was created under the Ministry of Finance, which during February-March receives proposals for discussion, drafting of legal acts and public consultation. Decisions at the Seimas could be made in the spring session, April-June.