VILNIUS - The International Monetary Fund has recommended that Lithuania cut its income tax rate to at least 30 percent and to refrain from using the tax system as "a tool to implement social objectives."
"A symbolic reduction of the income tax would not yield the desirable effect," IMF mission head Ashoka Mody said at a news conference on a Dec. 10. "In our opinion, the country should seek for an ambitious rate review."
He refused to specify the income tax rate the fund found advisable but noted that a reduction of a rate up to 30 percent would not be "ambitious."
Currently the income tax rate in Lithuania is 33 percent.
During a series of meetings with government representatives, IMF officials proposed to reduce the income tax to 26 percent and raise the profit tax to 26 percent (from 15 percent) simultaneously, the Baltic News Service reported.
The mission advised the government of Prime Minister Algirdas Brazauskas, which was approved by the president last week, to eliminate those tax breaks currently in effect, including the possibility of regaining a portion of income tax paid in order to purchase a flat or home.
"The government should not use the tax system as a tool to implement social objectives. Taxes should be collected, while the revenues might also be used for social policy," said the head of IMF mission.
According to reports, Lithuanian officials reacted coolly to the proposals.
Mody noted that the fiscal deficit of 2.5 percent of GDP for 2005 might prove to be too risky should the economic development cool down. He recommended reducing the deficit to 2 percent.
The mission also warned of poor collection of value-added tax.
Lithuania and the IMF had signed five economic policy memoranda and additional memoranda since 1992, the latest of which expired on March 31, 2003. Lithuania now cooperates with the fund on a partnership basis.
As of late October, Lithuania's debt to IMF comprised 75.4 million litas (21.8 million euros).