The Lithuanian Free Market Institute conducts regular surveys among Lithuanian opinion leaders to elicit their attitudes to the emerging market economy and judgements on the ongoing reform process. The questionnaires are designed to follow up on previous polls to ascertain shifts in opinion and the proportion of people supporting free market solutions. The opinion polls target top policy makers, leading entrepreneurs, academics, reporters, and a cross-section of public leaders.
Taxes As an Economic Reform Outsider
Asked about the economic reform accomplishments achieved in Lithuania since the restoration of independence in 1990, opinion leaders were the most critical about taxes (a score of -1.5 on a scale from – 10 to + 10). Taxes received the worst ratings in the preceding two polls, too. None of the professional groups questioned voiced favourable opinions about the tax reform.
Indeed, failing to root out the prevailing Soviet principles, taxation is one of the stumbling blocks in Lithuania’s economic transformation. The arcane and unwieldy tax code invites errors and corruption. The increasingly heavy tax burden makes a significant part of economic activity go unreported.
Instead of lifting the tax burden and simplifying the rules of tax computation, the government has resorted to tightening up on tax administration. All the attempts to redesign the tax system have so far been confined to conducting on-site inspections, or “fierce actions” as the government put it, adopting new taxes, and replacing rules.
The Myth of Tax Relief
The preceding opinion polls reported a total of 69.8 percent of opinion leaders in favour of special tax breaks. Delightfully, the myth about the merits of tax relief is waning. Today a mere 47 percent of the respondents uphold tax breaks.
The last survey saw a demonstrable shift in opinion. Most of the respondents uncertain about the expediency of special tax breaks have swelled the ranks of the opponents. As compared to the negligible 18 percent last year, today as many as 46.5 percent of those polled disapprove of tax favours. It is distressing that the representatives of academia and enterpreneurs top-ranked among those advocating tax relief. Having lost the battle for a pro-market tax reform, the business community has lined up seeking at least a small share of the pie, which, by the way, dwindles in a trice, failing to feed the hungry and upsetting the stomach.
The analysis of the political spectrum revealed the controversy surrounding the issue of tax relief. The supporters of the Democratic Labour Party (DLP) appeared to be the most emphatic about the fallacy of tax favours. During the years in power they must have grasped the essence of rent-seeking and the impact of tax relief on the integrity of the system.
Those who did not have a chance to witness the syndrome of rent-seekers and are therefore ignorant about its implications are more likely to take up the popular belief about the virtues of tax favours and beguile the voters with it. Not accidentally, the supporters of the Social Democrats ranked on the left of the scale and those of the Centre Union and Liberals positioned close by.
Tax Reform to Combat Shadow Economy
Lower tax rates coupled with simpler and more explicit rules of tax computation are viewed as the most effective tools for fighting shadow activity. Liberalisation of business regulations comes second. The control of tax compliance ranked third, in support of the opinion that priority should be given to replacing the tax code rather than tax administration. As a rule, entrepreneurs top-ranked as the most outspoken critics, and sceptics for that matter, of “fierce actions.”
In terms of political preferences, the merits of lower taxes are emphasised mostly by middle-of-the-road and liberal-minded respondents, whereas the supporters of the Conservatives give preference to a more stringent control of tax compliance and heavier penalties for failure to comply.