LFMI Assesses Changes in the Tax Administration Law

The Parliament of Lithuania has adopted amendments to the Law on Tax Administration that will come into effect on September 1, 2001. LFMI had continuously called upon decision makers to limit discretionary powers of tax officers, to abolish exemptions for selected tax payers, to establish automatic inspection procedures, to establish a proper protection of tax payers’ rights, etc. Many of LFMI proposals found expresssion in the newly adopted amendments but the law still contains a number of glaring weaknesses.

Tax breaks and exemptions for large investors were abolished.

Bonus payments for tax officers for taxes exacted were abolished.

The right of tax officers to terminate a business activity for violations of tax laws was revoked.

The powers of tax officers were expanded, allowing them to impose various restrictions on business enterprises, to take for temporary use copies of a tax payer’s documents or computer data, etc.

The right to exact tax arrears, penalties and fines from personal accounts and to arrest tax payer’s property without court proceedings remains in effect.

The right of tax officers to apply indirect methods of measuring the tax base remains in effect.

Discretionary powers of tax officers to release tax payers from penalties and fines were expanded.

Fines for violations of tax rules will be calculated on the basis of the harm done to the state budget. Tax officers will have a discretionary right to reduce fines by up to 50 percent of the underpaid amount.

Fines calculated on a company’s turnover (in the amount of 10 percent of a company’s turnover during the past twelve months) for fraudulent book keeping remain in effect.

Tax officers were granted a discretionary right to postpone the payment of tax arreas for a longer period than the currently established period of two years.

A provision that penalties are calculated on the basis of the interest rate increased up to ten points on Treasury-bills issued by way of auction during the past quarter remains in effect.

Violations committed out of negligence were eliminated from the list of wilful violations.

The discretionary right of tax officers to determine the objects, scope and time of inspections remains in effect. The law has set a limit on the duration of inspections at 90 days, but it may be extended to one year.

The right to appeal against the decisions of the Tax Dispute Commission made in favour of tax payers remains in effect.

The amendments provide that the exaction of penalties, fines, taxes and other payments is suspended upon the filing by a tax payer of a complaint against the decision of a tax officer with the Tax Dispute Commission and subsequently the court.

The duty of commercial banks to provide information to tax institutions remains in effect.

The amendments provide that tax arrears that cannot be collected for objective reasons or the collection of which is inexpedient for social or economic reasons will be deemed irrecoverable. The possibility is envisaged to annul liabilities between economic entities and state or municipal institutions incurred by January 1, 2000.

A limitation of five years for exacting taxes was set.

The amendments give a right to third parties to pay tax arrears.