Tax reform effort picks up momentum

  • 2001-12-06
  • Bryan Bradley, VILNIUS
The Lithuanian government is forging ahead with a comprehensive tax-reform package it hopes will facilitate European Union accession negotiations and fulfill the campaign promises of the current ruling coalition, Finance Minister Dalia Grybauskaite said in a speech on Nov. 29.

The plan's core is to reduce the corporate profit tax to 15 percent from 24 percent from the start of 2002 while abolishing tax holidays, and from 2003, to significantly reduce the current 33 percent rate of personal income tax and introduce universal income tax declaration.

In an address to the United States Chamber of Commerce Grybauskaite said the government, since taking office in July, had been under pressure from both the EU and parties in the new ruling coalition to speed up tax reforms. "We've just closed the customs chapter in EU accession talks and are now negotiating the tax chapter," Grybauskaite noted.

Promises made during the last election campaign, among them the pledge to cut personal income taxes, were causing the greatest difficulties, she said. "We're trying to constrain politicians' wish lists, to make them more realistic," she said.

A new excise law was put in place this fall, while draft laws on value added and corporate profit taxes were sent to Parliament at the end of November. The government's proposed changes to the personal income tax law are expected to reach Parliament in March. Grybauskaite stressed that the various changes form a package of mutually dependent items, designed to boost government revenues while at the same time encouraging commerce through business incentives.

The government hopes to reduce the personal income tax rate by 4 percentage points to 29 percent although a final decision has yet to be made, she said.

"We're still negotiating between the two major political parties and with specialists and non-government groups. On the whole we're ready to discuss with anyone, especially about accounting problems the changes could provoke."

International business groups like the American Chamber of Commerce and the Investors' Forum have expressed support for the government's broad tax strategy even if debate continues on many details. The International Monetary Fund also seems to approve.

The IMF's representative in Lithuania, Mark Horton, said the government's tax policy was ultimately being defined by EU requirements, internal revenue constraints and the need to simplify and liberalize the tax system. "These three things give a pretty clear road map," Horton told The Baltic Times. "Probably as a result the government will get an outcome that is rather robust and in a way that won't require further changes in two or three years, like some of the previous government's plans might have."

That foreign investors have endorsed the current proposals shows that tax breaks like that which has applied to reinvested profits since 1997 are not the key to attracting investment, Horton added. "What is more important for investors is to have a simple, transparent and stable system."