LFMI’s position on furthering the tax reform in Lithuania

On 28 February 2006 LFMI staged a press conference and a round table discussion “It’s Time to Speed Up the Tax Reform in Lithuania” and presented a package of policy proposals on urgent changes in the Lithuanian tax system. The Institute’s recommendations have been designed with a view to reducing emigration of the labour force, increasing Lithuania’s competitiveness and enhancing people’s welfare.

LFMI’s proposals embrace a number of taxes applied in Lithuania. According to LFMI, it is indispensable to cut the personal income tax without delay (from the current 33-percent tax rate to 24 percent starting from 2007 and to 15 percent from the beginning of 2009), to set an upper ceiling on state social insurance contributions (of 3.5 average wage) and to gradually increase the component of the social insurance contribution allowed to be transferred to private pension funds, and to abolish the newly imposed real estate tax for residents applied to real estate used for commercial purposes, the new social tax for companies and all exemptions of the value added tax.

Although participants expressed various views regarding the specific details of the tax reform, the majority agreed that the personal income tax needs to be lowered considerably and urgently and that the ceiling on social insurance contributions needs to be established before long. There was also unanimous agreement among the discussants that tax exemptions distort the market and complicate tax administration.

LFMI hopes that the proposed package of tax policy solutions will serve as the first practical step towards shaping a plan for a real and tangible tax reform in Lithuania.