The Lithuanian Free Market Institute has examined a draft law no. 17-10219 amending Articles 2, 6, 16, 17, 18, 19, 20, 22, 24, 27, 29, 33 and 34 of the Law on Personal Income Tax no. IX-1007 and supplementing the said law with Article 182, and submitted its comments and proposals to relevant authorities.
Among other things, the draft law stipulates the following:
- an increase in the amount of tax-exempt income from 310 to 380 euro;
- the removal of the additional tax-exempt amount for parents with children (with necessary legislative changes for a transition to direct payments of child benefits with no regard to the family’s income);
- the removal of the fixed personal income tax floor payable by business certificate holders, leaving the right to fix the rate to individual municipalities;
- a reduction in the amount of annual income subject to a fixed personal income tax from 45,000 to 20,000 euro when working under a business certificate;
- the introduction of a progressive tax on income from all types of individual activities, establishing a 5 per cent rate for the annual income of up to 10,000 euro and introducing a gradual increase to a maximum of 15 per cent for the annual income of 30,000 euro and more.
The Lithuanian Free Market Institute supports the proposal to increase the amount of tax-exempt income from 310 to 380 euro but does not agree that the removal of the additional tax-exempt amount for parents with a transition to direct payments of child benefits is a step towards the right direction. In LFMI’s view, public support to the less well-off families should be based on the means test, taking into account family income and property while a transition to universal child benefits would include supporting financially well-off families and will not be targeted.
The Lithuanian Free Market Institute also upholds the removal of the fixed personal income tax floor payable by business certificate holders by leaving the right to fix the rate to municipalities. However, a reduction in the amount of annual income subject to a fixed personal income tax from 45,000 to 20,000 euro when working under a business certificate would pose a significant burden to over 10,000 taxpayers. It should be noted that a monthly income of 1667 euro of an individual working under a business certificate includes not only profit, but social security contributions, health insurance and other direct costs resulting from individual activities. Therefore, LFMI proposes to uphold the current amount of 45,000 euro. As regards the introduction of a progressive tax on income from all types of individual activities, LFMI calls for the rejection of the proposal, because it will pose a significant increase in the tax burden, potentially forcing many into the grey economy.
Given the aforementioned, the Lithuanian Free Market Institute calls for a thorough impact assessment of the proposed amendments.
The full position paper (in Lithuanian) is available here.
