VILNIUS - Lithuania's four-party coalition finally reached an agreement on tax policy last week, opting for a hike on corporate profits in lieu of one on turnover beginning in 2006.
Parliamentary Speaker Artur-as Paulauskas told journalists after the May 19 meeting of the coalition's political council that the increase in corporate profit tax would be imposed for two years in order to cover shortfalls due to the planned decrease in income tax. In 2006 an additional 4 percent tax will be levied on profits, followed by another 3 percent in 2007.
By 2008 the rate will return to the current 15 percent.
Previously the political council had decided upon a controversial tax on corporate sales for a period of two years to make up for the road tax, which is to be cancelled July 1 this year, and a cut in income taxes. In protest, Algirdas Butkevicius resigned his position as finance minister, claiming this tax would create resentment in the business community and could even be contested in court.
Ironically, it was his proposal to raise the profit tax that the coalition ultimately adopted.
The ruling parties 's the Social Democrats, the Social Liberals, the Labor Party and the Farmers-New Democracy Union 's has struggled with tax reform, arguably the core component of the coalition, as they tried to compensate for the loss of revenues due to the planned decrease in income tax, which at 33 percent is the highest in the Baltics.
The ruling coalition will reduce the income tax to 27 percent in 2007 and then 24 percent in 2008.
Meanwhile, Prime Minister Algirdas Brazauskas rejected a proposal by the opposition Liberal-Centrist Union to privatize Rytu Skirstomieji Tinklai (Eastern Power Grid), a power distribution company, in order to cover the budget shortfalls.
"There were times when the Conservatives used privatization proceeds to help plug budget holes. This is incorrect and impermissible," Brazauskas told Parliament on May 19. "Instead of compensating people for lost ruble deposits, the money was used to plug holes in the budget. We are not going to do so."
Gintaras Steponavicius, deputy chairman of Parliament and leader of the Liberal-Centrist Union, said that RST is worth between 700 million 's 1 billion litas (203 's 290 million euros). "This is the amount that is needed to cover the budget gap," he said.
