KLAIPEDA - With the Latvian government's decision to implement a property tax from next year, Lithuanian political parties and the government itself are ardently arguing over the necessity, terms and size of the much-anticipated real estate tax for Lithuania. It seems that all major parties are tending towards agreement over the necessity of the property tax, however, heated discussions as to whether it should be applied only to costly properties or to every private home and apartment, thus becoming a common annual tax, are flaring up.
The property tax introduction has become a hot issue particularly at the end of the fiscal year, as the Lithuanian government outlined the 2010 state budget with an over 5 billion litas' (1.4 billion euros) gaping budget deficit.
Deliberations on the new tax have been going on in Lithuania since 2004. The then Minister of Finance Algirdas Butkevicius, responding to the International Monetary Fund's representatives' rebuke over "a narrow Lithuanian tax basis," pledged that the Social Democrats' government would implement a property tax. So, in 2005, the government confirmed the Convergence Program in which it foresaw its commitments to introduce the property tax on all real estate and vehicles within two years.
However, in 2005, the Lithuanian Parliament passed the new Real Estate Tax law, which replaced the previous one, taxing only real estate owned by legal entities.
Last year, the new center-right government in its 'Anti-crisis Plan' included implementation of the property tax on both legal entities and natural persons; however, it soon gave up the idea, pleading an absence of a strong political will on the issue. The property tax idea was brought up again at the beginning of this year when social unrest broke out at the Parliament building.
Nevertheless, it seems that this time all political parties will come together with an agreement on the issue. "Our left-wing government was about to implement the property tax in 2005, but we encountered severe resistance from other parties, first of all, from the Labor Party, so our government decided to put off its implementation. I am convinced that [the property tax law] could have worked out well. If the property tax had been passed, people would have been more cautious when applying for loans to acquire real estate. Social Democrats stand for passing the tax law as soon as possible, hopefully, from 2011. We suggest that the tax should be applied to properties worth over 800,000 litas. The tax should serve as a tool for social justice. I hope that there will be sufficient political will to pass the law," Chairman of the Social Democrat Party Algirdas Butkevicius said to The Baltic Times.
Kestutis Glaveckas, a member of the Parliament's Liberal Movement faction and Chairman of the Parliament's Finance and Budget Committee, is also convinced that the property tax could have served as a sensitive protector if it had been introduced much earlier. "The property tax exists in all Western European countries. Usually, it is set at approximately 1 percent of the cadastral value of the residence. We should follow other Western countries' example. However, it would not be wise to consider it as a means to lessen the expected 2010 budget deficit. The tax should be applied only to luxury properties which are worth about 1 million litas," said Glaveckas to the daily Vakaru Ekspresas. According to him, there are over 4,500 luxury homes in Lithuania on which the property tax should be applied.
With reference to the Lithuanian Registry Center's data, all Lithuanian real estate, including private houses and apartments, are worth approximately 171 billion litas.
Chairman of the Parliament's ruling Homeland Union and Christian Democrats faction, Jurgis Razma, said "The party is going to pursue the property tax implementation as it is outlined in the government's program. We haven't finally agreed upon the principles of the taxation or when it should be brought in. Personally, I believe the tax could be introduced from 2011, taxing houses and apartments worth at least a half million litas, thus setting [the tax] at 1 percent of the cadastral value of the residence."
Chairman of the Parliament's "Order and Justice" faction, Valentinas Mazuronis, also maintains the necessity for the tax. "However, our position regarding the tax is a bit different. We suggest to apply it only for the owner's second, third and next property. The tax should not be applied to the person's only apartment, house, garage or garden," he said.
The Parliament's Labor Party and its leader Viktor Uspaskich, who is considered the richest man in Lithuania, have been known for their fierce opposition to the tax. Uspaskich could not be reached for comment.
The ousted Lithuanian Parliament's Chairman Arunas Valinskas, who is Chairman of the National Resurrection Party, stands for the tax implementation starting in 2013, setting the lowest taxable property at 100,000 litas. "The tax should supplement our tax basis, therefore, it should be applied to each and every property worth more than 100,000 litas," he told Verslo Zinios.
Minister of Finance Ingrida Simonyte calls the tax "a very good tax," suggesting it could get under control future real estate "bubbles" and, more importantly, serve as an important instrument for the autonomy of Lithuania's municipalities. "However, when applying the tax, we should differentiate whether it is applied on a hostel's room or a luxury house. There is also an ongoing discussion on whether the tax should be applied on a common real estate value or just on the real estate's number of square meters. Nevertheless, I hope that the political agreement on the tax will have been worked out and the tax passed by 2011," she said, reports news portal Delfi.
It is estimated that with the tax set to be applied on property values starting at 1 million litas, the budget will be annually supplemented with an extra 5-8 million litas.