The Lithuanian Free Market Institute has examined draft amendments to Articles 3, 8, 9 and 10 of the Law on the Municipal Budgetary Revenue Estimation Methodology aimed at establishing a new model of intra-budgetary redistribution of the Personal Income Tax across municipalities.
Currently tax revenue from the largest and strongest municipalities is used to support the weaker ones. On the one hand, redistribution is beneficial for economically weaker municipalities that may use additional funding for performing its functions. On the other hand, redistribution creates problems for the donor municipalities that have to bequeath a significant part of the revenue from the Personal Income Tax and cannot use it for their own needs.
Since the effective law does not provide a clear criterion of determination on the proportion of the Personal Income Tax allocation across municipalities thus making the current intra-budgetary redistribution disproportionate, the amendments are not only aimed at the establishment of a new model of redistribution, but providing a clear definition of the criterion discussed.
However, in LFMI’s view, the amendments proposed will not allow the attainment of the stated objective to level municipal revenue per capita across Lithuanian municipalities as well as entail additional State expenditure. Therefore, LFMI calls for the evaluation of the proposal’s influnce on public finances and the possibility to abolish intra-budgetary redistribution of the Personal Income Tax across municipalities.
The full position paper (in Lithuanian) can be found at http://www.llri.lt/naujienos/ekonomine-politika/mokesciai-biudzetas/ekspertize-llri-siulo-neperskirstyti-gpm-tarp-savivaldybiu/lrinka
More information on LFMI’s research on intra-budgetary redistribution of the Personal Income Tax across municipalities (in English) can be found at http://en.llri.lt/news/economic-policy/redistribution-of-intra-budgetary-funds-across-municipalities/lrinka
