Initiated by the Lithuanian Free Market Institute (LFMI), twelve business associations and trade unions signed and submitted an appeal to the Lithuanian Government and parliamentary parties, urging the authorities to launch a more significant reduction of taxation of labour without further delay.

The signatories welcomed the reduction of the personal income tax to 27 percent which took effect from 1 July 2006 but stressed this was not enough to increase the competitiveness of the Lithuanian economy and people’s welfare, as taxation of labour in Lithuania still remains one of the highest in the European Union. They pointed out that the current economic situation and growing budget revenues build conditions for more substantial tax cuts and proposed concrete steps.

Representatives from business associations, trade unions and policy analysts suggested lowering the rate of personal income tax to 20 percent not later than from 1 January 2008 and to 15 percent from 1 January 2009 (if GDP continues to grow by at least 5 percent in 2007). They also put forth a proposal (except the trade unions) to set an upper ceiling on social security contributions which would amount to five average wages in Lithuania.

In line with the proposed tax cuts, the signatories urged the authorities to revise budget expenditures and to ensure a more effective use of tax-payer money.

According to signatories, significant lowering of income taxes would kick-start the Lithuanian economy and attract investments; increased investments and a lower income tax would augment wages; and legalisation of the informal sector and intensified economic activity would generate more revenues to the national budget.

The appeal signed by a group of associations and LFMI was submitted to Lithuanian authorities on 29 June 2006.