The impact of Chinese products on the Lithuanian economy: companies and the budget lose millions and thousands of jobs every year

According to the Lithuanian Department of Statistics, last year almost half (about 48%) of the Lithuanian population bought online, and about 16%. (almost 480 thousand) sent goods from third countries. Proportion of the population that purchases online since 2012 tends to grow almost 4 percent. per year, according to a study by the public policy consultancy and analysis ESTEP.

After the quarantine was announced in Lithuania in March, stores of physical products, except for groceries, did not operate, encouraging the population to buy online.

However, comparing 2019 and 2020, Lietuvos Paštas (LP) still does not notice an increase in the number of packages. According to LP, the total annual number of shipments received from third countries is about 10 million. You. About 70 percent. of which come from China. Small, low-value shipments often arrive in Lithuania from China. Lithuanians ship everything from electronics to sponges to shoelaces.

According to the ESTEP population survey, the average basket of products from third countries last year was about 68 euros, and the average annual personal spending was 297 euros.

Last year, the commercial sector did not receive 142 million, the budget – 32 million. EUR

In total, the total expenditure of the Lithuanian population e. for trade from third countries amounted to – 142.4 million. Eur, that is, about 37 percent. all expenses online. According to the forecasts of the experts, these costs will rise to 225 million this year. EUR. However, it is worth noting that these predictions were made without considering the COVID-19 environment, which has likely further accelerated e-government. business growth.

These figures show that last year the Lithuanian retail sector did not receive 142 million LTL due to e-commerce from third countries. Income in euros, of which about 18 million. Eur consisted of low value shipments. This is about 1 percent. the entire turnover of the Lithuanian retail trade. For comparison, in 2018. Lithuania’s retail trade turnover was 11.7 billion. Eur per year.

All goods, with the exception of books (9%), imported from third countries with a cost greater than € 22 are currently subject to a 21% tax. VAT rate, and if the value is greater than 150 euros – also customs duties. This is the state revenue to the budget, local entrepreneurs must pay the same taxes before selling goods.

The European Commission has found that around € 7 billion is not collected in Member State budgets due to tax exemptions and misreporting. by year. According to the ESTEP study, last year the loss of the state budget in Lithuania due to insufficient functioning of the parcel tax system amounted to 31.6 million LTL. EUR. In addition, due to existing benefits – 8.3 million. EUR.

The loss to the state budget, excluding the COVID-19 environment, is projected to increase to $ 50 million this year. EUR.

How Delphi According to Lietuvos Paštas, import taxes, i.e. customs duties and / or VAT, are collected at around 0.5%. All items received from non-EU countries via Lithuanian post. According to the study, Lithuanian customs tax only 3 shipments per 1,000, and this proportion has been declining in recent years.

Existing incentives reduce state budget revenues and create unequal conditions of competition between national and non-established companies, because imported goods (unlike those purchased from local companies) are not subject to value added tax, that is, the price difference is at least 21%.

Electronic commerce promotes competition and is welcome, but the current administrative system leads to unequal fiscal conditions, which distort competition and the natural balance of the market, ”says the study.

Vainienė: the whole system adapts to profit

Rūta Vainienė, director of the Lithuanian Trade Companies Association (LPĮA), says that the competitive environment is distorted mainly due to illegal ways to take advantage of the benefits, declaring a lower value of the product than it actually is during shipping .

“It just came to our knowledge then. It is said that up to 22 euros of goods do not have to pay VAT, and up to 150 euros – customs duties. If a person buys for 200 euros, the sender indicates 20 euros on the shipping package, knowing that such regulation exists and that it can be avoided.

Customs inspects 3 out of every 1000 shipments, trusts the value indicated on the shipment and does not inspect. So here is a completely gray area. Of course, there are those who legally benefit from the benefit: if you buy for 20 euros, then you do not have to pay (VAT – Delphi). (…) However, the absolute majority is not so much due to profit, but much more to the fact that lower value goods are declared (it distorts competition – Delphi) ”, Says R. Vainienė.

Not only that, the study also claims that if all email. Commercial turnover from third countries in 2019 would have been relocated to Lithuania, the Lithuanian retail sector would have employed 1,574 additional employees.

“Trade is about labor costs. (…) In the case of 142 million euros. or 225 million. Eur for additional billing, it is natural that you have to hire employees ”, explains the head of LPIA.

Experts predict that once deficiencies in the administrative system are resolved and tax benefits are removed, at least half of the emails will return to Lithuania. trade from third countries, which would create at least 750 additional jobs. Assuming a recovery of 90% instead of half. turnover, this would create around 1,400 seats.

Traders also create competition with Chinese products

Dalia Matukienė, President of the Lithuanian Council of Small and Medium Enterprises, believes that the competition for Lithuanian traders is quite high, but it is not only created by e. China trade, but also large supermarkets.

“Small and medium-sized businesses, especially entrepreneurs who work under a business license or are self-employed, have several very large competitors. First of all, large shopping centers, of which there are too many in Lithuania. Another competitor is cheap products from China, which are sold by email. trade is introduced by our so-called merchants. It’s true, I don’t know how they pay those taxes, but I think the competition is very high, ”says D. Matukienė.

According to her, due to these reasons, Lithuanian producers and sellers of Lithuanian products and those who trade in forms other than email lose a lot of income every year. Commerce.

“Competition is a good and healthy thing, the only question is about taxes, some pay them, others don’t. There is a conflict, there are relevant services that monitor what is sent, how much is sold and if those taxes are paid, “he says.

The pandemic exacerbated the problem

During the pandemic, the emails got even more pronounced. the problem of third country trade and distorted competition. She cites medical masks as an example.

“I am puzzled by the quality that Chinese vendors offer. We saw what was happening with the masks and other things. Our companies were perfectly capable of offering masks and at a much lower price, but no one answered that question why China was chosen.

During the first wave, Lithuanian producers were able to produce masks, and the state would have needed to inject much less money into the economy, instead of buying low-quality and overpriced ones elsewhere, ”says D. Matukienė.

The interlocutor is convinced that each country must protect its producer and consume its product, especially with regard to food and miscellaneous items.

“When the products of the producers themselves are used, only then does the economy start to turn. As long as we sell, buy cheap and sell more expensive, the small circle will continue to rotate. But if the circle of consumers expands, the goods become cheaper If they were made here in Lithuania, the salaries would be paid to the people of this country, the money of the added value created by this country would be collected in the budget ”, emphasizes the president of the Lithuanian Council of Small and Medium Enterprises.

The Seimas proposes to abolish the VAT exemption

The Seimas proposes to abolish the VAT deduction for small shipments from third countries worth up to 22 euros from next year. Last week, after deliberations, the Seimas unanimously approved such amendments to the VAT law. The changes are expected to take effect in January 2021, but the European Commission has proposed to postpone their implementation for half a year, until July 1, 2021.

According to Gintarė Kitovė, representative of the Lithuanian Post’s Corporate Affairs Department, it is still difficult to predict how changes will affect customer behavior, as there are no such forecasts in either the EU or Lithuania. However, trade flows from third countries are likely to decline.

As you know, within the EU, with exceptions, there is still an exemption until July next year, when third-country goods with a value of up to 22 euros are not subject to VAT or customs duties. And this is the bulk of the traffic that currently comes from third countries. This situation is likely to change in the coming years.

(…) There are many changes and still not all are entirely clear: the possibilities of declaring shipments, prepayment of taxes on the purchase of goods, declaration fees, etc., so it is difficult to predict how the changes will affect the buyer behavior ”, he points out.

Lithuania Post: the situation is much more complicated than last year

So far, comparing 2019 and 2020, LP does not notice an increase in the number of shipments. The first and second quarters of this year, when there were significant interruptions in international transport chains due to the global pandemic, they were canceled by more than 80%. flights. At that time, shipments from China traveled to Lithuania and throughout Europe using land transport – trains.

“Although the situation was better in the summer, it did not return to pre-pandemic levels. Currently, interruptions in transport chains are high again, the situation is much more complicated than last year. This can best be assessed by comparing how many scheduled flights are currently operating and how many there were last year.

“In the near future, the international transport situation is likely to be complicated not only by the increasing scale of the pandemic, the tightening of restrictions in countries, but also by the end of the year, when there will be a significant increase in shipments. due to big sales and Christmas, “he added. Otherness.

In July, shipments from China traveled to Lithuania for about 47 days, on August 35. LP predicts that September data will be similar to August data.