K. Leontjeva. How much do we fill up our car’s tank and how much – our nation’s budget?

Have you been to the Lithuanian seaside this summer? If not, chances are that you, much as many Lithuanian families, are scrupulously calculating your vacation expenses. Accommodation, food, entertainment, and the Palanga pillow tax introduced in 2012 all impose considerable strains on family budget.

Expenditure on transportation is no exception – if you are travelling to Palanga from Vilnius and your car consumes 10 liters per 100 km, you will pay around 300 litas for the round trip.

The tax calculator “I Pay the Taxes” will show you that, when buying gas for 300 litas, only 150 litas goes to your vehicle’s tank – the rest goes to the state budget. If you travel 20,000 km each year, of the 9200 litas you spend for gas, 4600 Lt goes to the government.

Taxes make up a half of the final price of gas. At the current price of gas – 4.60 litas – the value-added tax (VAT) comprises 80 cents. Excise tax is not determined by the price of gas – it is fixed at 1.50 litas per one liter of gasoline. Excise is also taxed with the VAT and together these taxes amount to 2.30 litas.

Recently there have been many discussions about introducing vehicle taxes and the proponents of this policy talked about its need as if car usage had not been heavily taxed already. However, it is crucial to consider the vehicle tax in light of exorbitant taxes on gas. If car owners already pay thousands by simply buying gas for their vehicles, is it rational to burden them with yet another tax?

Quite obviously, it is not. What the motorists need is in fact to have their massive expenditure on commuting reduced. The government likes to claim that it “cares about each person” – if it wants to prove this, there are three ways to cut the excessive expenditure on gas.

Firstly, the excise tax should not be taxed with VAT. While even the idea that a certain tax is taxed by another tax seems absurd, it is precisely the case with gas excise tax in Lithuania: the VAT is based on the final price of oil when the price of the good and the excise tax are added. The actual price of gas (2.30 litas) is combined with 1.50 litas of excise and this sum is then taxed with 21% VAT. The same happens with the alcohol and tabacco excise taxes. By abandoning this policy, we would decrease the price paid for gas by 32 cents.

Secondly, the excise tax should be lowered to the minimum required by the EU – 1.24 Lt.

Politicians often claim that excises cannot be reduced because of the EU regulations on minimum excise tax levels, but in the case of gas, we exceed the minimum by a large margin. Thus, we are free to lower it and we could do so with the next year’s budget already. As mentioned before, as the VAT is calculated on the final price of gas, it too would decrease. In the end, we would experience a 31 cents drop in gas prices – from 4.60 to 4.29 litas.

Thirdly, the “temporary” VAT increase should be rebuked and the VAT should be brought back to 18%. When the VAT was increased in the end of 2008, we were promised that it was merely a temporary measure. The crisis has ended, the public sector employees had their salaries restored to pre-crisis levels, pensions were not only restored but are now being compensated – but the taxpayers are still dealing with the “crisis” VAT. The warnings that by decreasing the VAT the budget would suffer 1.5bn losses are highly inaccurate: in reality, a 1% decrease in the VAT would shrink the budget by 120m only without taking into account how much benefits that would bring in the long-term. If big losses are feared, decreasing the VAT can be carried out gradually: in 2015, the VAT tariff could be 20%, 2016 – 19%, 2017 – 18%. That would make the price of gas fall to 4.48 litas from the current 4.60 litas.

If all three proposals were implemented, we would see the gas prices decreasing to 3.95 litas. Then, for each liter of gas bought, 2.30 litas would “go to the tank” and 1.65 – to the budget. The cost of the trip to Palanga would decrease to 260 litas. By fueling the budget with excessive taxes less, we would have more money for both the fuel, and the ice-cream.

LFMI, by introducing the educational initiative “I Pay the Taxes” aims to conveniently and clearly inform the Lithuanian citizens about how much they pay in taxes, and how their money is used.

Initiative partner: