Lithuania’s president supports increasing corporate income tax for defense funding

VILNIUS – With Lithuanian authorities discussing increased defense funding, President Gitanas Nauseda says he supports additional taxation on corporate income but stresses that he is “categorically against” raising the value-added tax (VAT).

“If we are talking about one-off things, such as hosting a German brigade, we can certainly make do with a borrowing instrument,” the head of state told reporters in Brussels.

“If we are talking about sustainable and long-term modernization of the Lithuanian Armed Forces, some additional resources can come from taxes, but I am categorically opposed to a VAT increase, because that would be anti-social today.”

“As far as I understand it, that proposal has basically been taken off the table,” he added.

The government intends to set up a special fund for defense, to be resourced from proceeds from higher taxes, in order to increase the fixed funding for national defense from 2.5 to 3 percent of gross domestic product (GDP).

The Cabinet is also expected to draft proposals in the coming weeks on how and which taxes to change.

The main support from the opposition and the ruling parties is for an increase in corporate income tax and some excise duties. At the same time, politicians do not generally support raising VAT. Nonetheless, Prime Minister Ingrida Simonyte said after a meeting on Wednesday that she did not rule out any of the alternatives for the time being.

“Corporate income tax – whether it is an increase, a reduction in exemptions or an increase in progressivity – they [these proposals] are all about the same thing, about a tax base based on profits. I think we could certainly find a consensus here,” Nauseda said.

He did not specify which corporate income tax rate he would support.

However, the president reiterated his opposition to the previously proposed idea of reducing the municipalities' share of proceeds from the personal income tax.

“Other solutions, such as the use of municipal finances, seem to have been pulled, I don't know, from where,” he said.

“Given that municipal functions are sometimes just maliciously not being given money from the center, this is more than unjustifiable and shameful.”

Nauseda urged politicians not to delay in taking decisions.

“If we are talking about some tax issues, I have to point out that this has to be announced six months before implementation. So that window of time closes, as was the case with the tax reform. The scope of the project itself is not as huge as the tax reform, so I think it is possible to reach an agreement,” he said.