VILNIUS - In a search for additional revenues and closure of tax loopholes, lawmakers in Lithuania and Latvia have set their sights on car purchases. Social Democratic MPs in the Seima (Lithuania's parliament) have appealed to President Valdas Adamkus to veto an amendment to the VAT law that would allow businesses to claim back value-added tax paid on new cars. The lawmakers said that the amendment would cost the state over 80 million litas (23.2 million euros) in lost budget revenues annually.
Parliament on April 17 passed the amendment, effective Oct. 1 this year, by a vote of 45 to 15, with 19 abstentions. The amendment allows companies to claim back VAT on up to 130,000 litas (37,900 euros) of the price paid per car.
"Only companies will be entitled to a VAT refund on car acquisitions [according to the amendment]. This will be an incentive to dishonest persons to try and buy cars via companies and thus save money at the expense of the state," the lawmakers wrote in their appeal to the head of state.
The Social Democrats also pointed out that those MPs who have shareholdings in companies, or have family members who do, failed to abstain from voting, thus placing themselves in a potential conflict of interest situation.
They flatly rejected the argument that the amendment would help increase safety on Lithuania's increasingly deadly roads.
"Companies will replace new cars with brand new ones, while most of our citizens will continue to drive their worn-out automobiles because the tax refund is not available to them," the statement read.
In Latvia, lawmakers want companies registering luxury vehicles to pay income tax on the autos. Currently many businessmen buy a high-ticket car via a small firm in order to avoid having to pay income taxes. Lawmakers claim that last year Latvian companies bought some 20 million euros in luxury autos.
According to the draft law that passed a first reading in the Saeima on April 19, all automobiles costing more than 30,000 lats (42,800 euros) will be tagged with a 15 percent income surcharge if they are purchased through legal entities.
The Finance Ministry claims the change will fill the state's coffers by 330,000 lats in 2008 and as much as 1.17 million in 2010, according to the Bizness & Baltija paper.