Prime Minister Algirdas Butkevičius recently hinted that Lithuania should implement the Portuguese tax system. Bottomless budget supplement reaching Portugal has taken various transformations in recent years.
The details about the proposed changes are becoming clear. The government is considering the creation of a state lottery sales receipt, similar to that of Portugal, to be launched in April. To make execution of the new proposal possible, the State Tax Inspectorate (STI) will create a framework in order to remotely track cash registers (as does Portugal). STI promises that the new system will generate half a billion litas more in tax.
In 2010, a similar policy came into effect in Sweden. The scheme uses a cash machine with a ‘black box,’ at a cost of 1785 euros (6160 litas). Businesses that have not signed onto the cash register system have been severely punished.
It is clear that the proposed changes would be expensive for Lithuania businesses and consumers. It is unclear how much the proposals would cost and how long the measures would take to be fully implemented. However, in view of the earlier government implementations of large scale IT projects (such as the e-Healthcare system), the prospects are not promising.
Meanwhile, reform of the country’s tax administration is an opportunity to streamline our tax system and make it more simple and effective. We can look to Portugal as an example on how to achieve this. Of course, blindly copying the experience of Portugal is not an ideal solution. Portugal made a number of negative decisions– namely increasing taxes – which are best not duplicated. However, there are few better examples of the successful implementation of tax changes in recent times.
Portugal began by merging its Tax and Customs departments, thereby reducing the administrative burden on taxpayers because of the need to deal with one, instead of two, state institutions. A positive assessment of the connection for Economic Co-operation and Development (OECD) advises Portugal to further increase the efficiency of its tax administration, and for the tax office to unite with the country’s social security system.
The second example is the ability of Portuguese businesses to pay value added tax (VAT) when accounting for goods or services, rather than the VAT invoice is issued. This option can be beneficial to companies with turnovers up to half a million. This comprises of 85 per cent of all the country’s businesses.
These procedures are implemented in absolution of Lithuania’s enterprises, which lack permanent working capital. If the order is in force in 2009-2011, it is basically a number which facilitated the undertaking. Let us recall the difficulties faced by companies in the past, which had to pay VAT on any goods or services to their customers, and were real danger of bankruptcy. After all, at that time Lithuania had not even legalized ability to recover VAT paid in the event of bad debt!
The third change, which can be borrowed from Portugal, is that the population is able to recover part of the VAT tax paid. In declaring their income, residents can recover five percent. For certain goods or services (groceries, cafes and restaurants, automotive services, hairdressing services etc.) VAT is paid up to 250 euros (863 litas) – the annual limit. To be eligible, it is necessary to have legal documents proving the purchases made, such as receipts and invoices. While this is not a tax change in the literal sense, this procedure encourages people to buy legally and keep a record of their transactions.
Unlike a raffle organized by the government, this arrangement encourages customers to ask for sales receipts’, with the incentive of reducing what they pay in tax. For the sixth consecutive year, Lithuanians have been paying an increased “temporary tax” of 18 to 21 percent in VAT. And yet, the government refuses to even discuss a VAT reduction in the near future. Such arrangements would do at least as much to reduce the tax burden on the population, while encouraging them to keep a record oftheirspending.
Thus, Portugal has much more than an exotic receipt lottery or ‘Big Brother’ cash tracking register. The country’s implementation of important tax changes led to the more economical use of taxpayers’ money and ensured that there is no obligation to pay VAT before services have been rendered. As in Portugal, we would like to see government tax apparatus’ merged and taxpayer burden reduced in Lithuania. We also propose changes in VAT tax so that it does not needlessly oppress business owners. These are vital changes for Lithuanian tax payers, and deserve the full attention of the government, unlike the more expensive and endless government IT project.