Lithuanian government’s tax plan aimed at increasing income for low, middle earners

A three-year tax overhaul plan, proposed by the Lithuanian government is aimed at increasing income for low and middle earners, as well as stepping up fight with shadow economy, Finance Minister Vilius Sapoka says.

“Tax overhaul is like building a house. (…) By asking support and assuming responsibility, I am inviting you to build this house together and not to try and destroy it,” he told lawmakers, introducing the planned changes. “We must look for and agree on a common interest, as the house will collapse if we remove one wall or the roof.”

The Seimas of Lithuania on Tuesday gave its initial backing to proposed amendment to the Law on Personal Income Tax, with 52 votes in favor, 28 against and 15 abstentions. The parliament plans to further discuss the proposed changes on Jun. 21.

The Lithuanian government is proposing increasing non-taxable income, merging social security premiums paid by employers and employees lowering social security premiums 2% and introducing a “ceiling” for social security premiums as well as transferring payment of basic pensions to the state budget.

Lithuanian Prime Minister Saulius Skvernelis says that his government experienced pressure to introduce a blanket tax on real estate, describing its current proposal as a compromise.

Skvernelis says that pressure came from international organizations and the central Bank of Lithuania.   “We did receive considerable pressure both from the International Monetary Fund or the OECD and from the Bank of Lithuania to introduce a blanket property tax,” he told reporters on Tuesday.

The prime minister described the government’s proposal as a compromise between the existing property taxation system and a blanket tax.

The central bank proposed to broaden the real estate tax base to cover all properties, setting a low taxation threshold so that a lower-valued property is taxed at a lower rate. 

The IMF has repeatedly recommended that Lithuania tax not only real estate, but also cars. The Organization for Economic Cooperation and Development has proposed that Lithuania should increase the property tax for households.

The government proposes to tax second, third and further residential properties owned by one individual at a rate of 0.3%.

Primary homes will continue to be taxed if their value exceed 220,000 euros at a rate depending on the value: 0.5% for a property valued at between 220,000 and 300,000 euros, 1% for a property valued at between 300,000 and 500,000 euros, and 2% for a property valued more than 500,000 euros. 

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