Lithuanian ministry proposes funding defense via corporate, insurance, excise taxes

  • 2024-05-21
  • BNS/TBT Staff

VILNIUS – The Lithuanian Finance Ministry on Tuesday proposed increasing the corporate tax rate by one percentage point, hiking excise duty on fuel, and introducing a tax on some insurance contracts as part of measures to raise additional funds for defense.

The package also includes issuing defense bonds and channeling 25 million euros from municipalities' share of personal income tax into civil protection annually.   

The proposed 1 percentage point hike in the corporate income tax rate, which currently stands at 15 percent, would only be reflected in the 2026 budget. To ensure extra defense funds for 2025, the ministry suggests extending the temporary bank solidarity levy for a year.

"We foresee that the exceptional circumstances in the financial sector will continue at least in 2025. Therefore, the law (on the temporary solidarity levy) is being amended to ensure additional revenue," Finance Minister Gintare Skaiste told a press conference later on Tuesday.

The ministry proposes to calculate the levy for 2025, like for 2024, based on banks' net interest income for 2019-2022. It is expected to raise around 60 million euros. 

The package also calls, among other measures, for increasing the reduced corporate tax rate for small-sized businesses by 1 percentage point to 6 percent, and scrapping the special corporate tax regime for the insurance and health sectors.

"The main additional revenue from the increase in the corporate tax rate would come in 2026, but due to the advance payment of corporate tax, some of the revenue would be available in 2025," Skaiste said.

In addition to the government's plan for excise hikes in the next three years, the ministry proposes to raise excise taxes on all types of fuel by 6 euro cents (excise duty plus value added tax).

Additional funds are also expected to be raised by introducing a 10 percent levy on insurance contracts, except for life insurance and personal liability insurance.

Skaiste emphasized that such a tax is in place in many EU member countries.

According to the minister, the market will still be consulted on the levy for insurance contracts, so it could only be applied from mid-2025. 

The Finance Ministry estimates that its proposals, if approved by the parliament, could generate 297.8 million euros in extra budget revenue in 2025, 421.2 million euros in 2026, and 436.5 million euros in 2027.


The ministry also proposes that the state could borrow from both individuals and legal entities for national defense, with the debt cost not exceeding 2 percent. The plan is to issue defense bonds, based on government savings notes.

Some 25 million euros from municipalities' share of personal income tax would go toward civil protection needs annually.   

"This would develop shelter infrastructure, as well as provide funds for prevention and preparedness initiatives, and essential equipment and reserves to ensure the readiness of the civil protection program in a crisis," Skaiste said.

The Interior Ministry estimates the funding needs for the Civil Protection Strengthening and Development Program at 150 million euros.

The so-called Defense Fund Package, unveiled by the Finance Ministry on Tuesday, consists of nine laws and a concept law on the proposed additional taxation of insurance contracts.   

The government plans to table the proposals to the parliament by the end of the current spring session. 

The Finance Ministry estimates that these proposals will allow boosting defense funding to around 3 percent of GDP by 2030.

Allocations for national defense are being increased to speed up the development of the planned military division and to host Germany's brigade.