High taxes under the gun in Vilnius

VILNIUS - Some think that May 16 should be a holiday in Lithuania, with
nothing to do with statehood or religion, but taxes.

Dubbed "Tax Freedom Day" by the Lithuanian Free Market Institute, May
16 represents the day of the year when Lithuanians stop working to pay
taxes to the government and start to make money for their own pockets.

Here's the formula: Add up all the money Lithuanians pay in taxes every
year, represent it as percentage of the country's gross domestic
product, then represent that percentage as a portion of a 365-day
calendar.

"We take GDP, then we calculate all the taxes paid to all kinds of
state and local budgets and funds (like SODRA, the Health Fund, and the
Road Fund), and then we calculate the tax burden as a percentage of
GDP," explained Ruta Vainiene of the Free Market Institute.

Since the study was started, Tax Freedom Day has been occurring later
every year. In 1993, the first year, it occurred on April 13, Vainiene
reports. In 1995 Tax Freedom Day fell on April 27. In 1997, it happened
on May 1, and in 1998 it was May 13.

Last year's Tax Freedom Day also occurred on May 16.

This fact is heartily acknowledged by government taxation authorities.

"The Free Market Institute recognizes that the tax burden has not been
increasing in the last couple of years," said Rimantas Vaicenavicius,
the Ministry of Finance's director of department of fiscal policy.
"There are no tax rate increases. In fact, we decreased corporate tax
from 29 percent to 24 percent this year, from Jan. 1. And for example,
the customs tariff decreased after we signed the free trade agreements.
Customs tariffs are decreasing each year."

However, says Vainiene, Tax Freedom Day doesn't only measure taxes, but
the public's ability to pay them.

"It depends not only on the taxes paid but also on the GDP created, so
there are two sides of this tax burden. So tax burden may decrease more
when GDP is created, and rates remain the same," she said.

The Free Market Institute also uses Tax Freedom Day to focus attacks on
bureaucracy and sluggish privatization efforts. Vainiene points out
the difference between taxpayers and tax consumers.

"We have so many bureaucrats who are not tax payers but tax consumers,"
she said. "We always are suggesting reducing the tax burden and
privatizing state functions, since every function can be carried out on
the market in a more efficient way and private suppliers of goods and
services, are always, as a rule, more effective."

The Finance Ministry's Vaicenavicius doesn't disagree.

"As companies are better managed, they operate better and pay more
taxes. They create more value-added," he said.

On reducing bureaucracy, Vaicenavicius maintains that it is government
policy to reduce bureaucracy. "We had sunrise and sunset commissions
for that task," he said. "But bureaucracy is more about expenditure,
not about tax policy. If there is less expenditure, there are less
taxes."

Compared to other countries, Lithuania's Tax Freedom Day happens
somewhere in the middle of the pack. "In Singapore," says Elena
Leontjeva, president of the Free Market Institute, "it happens at the
beginning of March. In other countries it happens in April. In Spain it
happens in the beginning of May. In Sweden, people work till the
beginning of July to pay their taxes. So you always can find examples
that are worse and which are better. Our aim is to look at those best
examples and to decrease the burden of state so people can pay less
taxes."

Tax Freedom Day isn't calculated in the other two Baltic States, but
Leontjeva predicts that Estonia would have an earlier celebration than
its southerly Baltic brother. "Redistribution is a little bit smaller
than in Lithuania, for sure," Leontjeva said.

Does the government listen to this message? It depends on who you ask.
The prime minister's spokesman Audrius Baciulis admitted that
government meetings prevented the prime minister from paying much
attention to the putative celebration.

However, the event received strong support from the increasingly
popular Lithuanian Liberal Union, led by Rolandas Paksas, former prime
minister and current mayor of Vilnius. On May 20, an anti-tax march
sponsored by the Liberal Union went up Gedimino Prospect to Parliament,
receiving substantial media attention. Alvydas Medalinskas, the
Liberal Union's sole member of Parliament, used the event to propose
improvements to the tax system.

"I would suggest reforming the profit tax. It could be abolished,
gradually, and taxes paid by people should be reduced as well," he
said.

The corporate tax has already been abolished in Estonia.

"See how it's facilitated for the business community and how the
country has become attractive for foreign investment. We think that our
government has to reform the tax system in order to make country more
attractive for foreign investment," Medalinskas said.

Another issue high on the Liberal Union's agenda is changing the
government's habit of changing tax rates several times a year.

"It would be reasonable to make changes one time a year. Then the
business community would be able to plan its activity and the
government would not interrupt it," Medalinskas said.

The Liberal Union also wants the state social security system to
undergo a "deep restructuring." Part of the social security fund
(SODRA), Medalinskas maintains, needs to be committed to private funds
to create a private pension fund.

"For the time being, what government is trying to do is increase taxes
for social security system," he said.

The Liberal Union doesn't want to change everything however. Currently,
there is a proposal on the table by the Christian Democratic Party to
scrap the current proportional tax system (like a flat tax) in favor of
a more complicated progressive system. This is opposed by the Liberal
Union.