VILNIUS – For Lithuania to raise more budget revenue and boost spending, especially on pensions, the government should broaden the tax base by increasing corporate income tax, expanding property and pollution taxation, and scrapping some tax exemptions, according to Borja Gracia, head of the International Monetary Fund's mission to Lithuania, which is concluding its visit on Friday.
"But there are other areas where you significantly collect less than other countries. Corporate income tax is one, where the potential revenue is not maybe that big, but it's an area where you could marginally change or increase that tax, preserving the attractiveness to foreign investments of the target system," Gracia told BNS in an interview.
"Real estate tax is very low in Lithuania; we understand that it's politically difficult, but it's significantly lower than in many other countries," he said.
According to the IMF mission chief, more revenue could also be raised from pollution taxes and from business areas that enjoy tax exemptions.
"There is also the area of exemptions. I believe the number is around 5 percent of GDP. And it's not collected because of tax exemptions or different taxes. It's unrealistic to believe you can collect the 5 percent, but maybe reconsidering what those exceptions are, what areas they are, maybe some can be eliminated," he said.
Gracia noted that pension financing will require more public spending in the next decade as the population continues to age, which is why the IMF recommends keeping the second pillar pension system unchanged, increasing the retirement age by tying to life expectancy, and taxing pensions.
"Your retirement age (...) extends to 65 until 2026. We think it's reasonable to link it to life expectancy, so that if the life expectancy improves, it should be reflected in your retirement pension and that would help significantly," the mission chief said.
"There are other reforms that could happen, for example if you want, if the goal is to support lower pensions, pensions overall can be subject to personal income tax," he said.
Gracia added that early withdrawal from pension saving should be exceptional and discouraged.
Commenting on the government's plans to extend the solidarity levy on banks, the IMF official said it could distort the taxation of businesses and be detrimental to the perception of Lithuania's investment climate.
"In so much as it aims to tax this extra profitability, it's a tax that is not being distortionary, so bank's behavior is not being affected by this tax. But at the same time, it means that once this extra profitability, the exceptional profitability, disappears, the tax will not deliver any revenue," he said.
Gracia noted that banks in Lithuania already pay a 5 percentage point higher corporate tax rate and that it is a sector predominantly owned by foreign investors.
"This could lead to the perception that you are taxing foreign investment (...). As long as this tax remains temporary, you will avoid that. But if you keep increasing taxes only in the banking sector, it could lead to that perception, which could be detrimental to this," he said.
The IMF forecasts about 2.4 percent growth for Lithuania's economy and around 1 percent inflation this year, according to Gracia.
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