International conference
Tax Competition and Competitiveness
Ten Years of Experience and Challenges for the Future
Under the courtesy of His Excellency the President of Lithuania
Welcome address - Dalia Grybauskaitë, Minister of Finance, Lithuania
December 5-6, 2002, Vilnius, Le Meridien Villon Hotel
On December 5-6, 2002 in Vilnius, the Lithuanian Free Market Institute, the Friedrich Naumann Foundation and the Heritage Foundation, in co-operation with the MG Baltic Concern and the Philip Morris-Lietuva company, hosted a two-day international conference “Tax Competition and Competitiveness. Ten Years of Experience and Challenges for the Future.” The conference was supported by the business daily Verslo zinios and the PricewaterhouseCoopers.
The aims of the conference were manifold. The primary purpose was to expose various players in the policy making process and business to the policy implications of recent and planned changes of tax policy in Lithuania and to compare the tax regimes and policy reforms pursued in the Baltic States and Russia. The aim was to highlight different approaches to tax policy adopted by the said countries, with special focus on the peculiarities of tax systems as well as advantages or disadvantages thereof from the perspective of business development, investment and economic growth. Presentation of the main facets of tax legislation in the EU were made to analyse the issues of tax harmonisation and tax competition.
The audience comprised approximately 250 participants, including members of parliament, high-ranking government officials, ministry executives, leading business people and representatives of major business associations, international institutions, academia and mass media.
A description of major changes in the Lithuanian tax legislation
On January 1, 2002 the corporate income tax was lowered from 29 to 15 percent but at the same time a zero-tax rate on reinvested profits, introduced in 1997, was abolished. Taxation of reinvested profits will reduce incentives and possibilities to expand business activities and to upgrade production technologies, thus diminishing the efficiency and competitiveness of Lithuanian enterprises.
On July 1, 2002 a new Law on Excise Duties is coming into force. The new law will abolish excise duties on jewellery, electrical energy, coffee, chocolate and other food products. Excise duties will remain for ethyl alcohol and alcoholic beverages, tobacco, fuels. A turnover tax will replace excise duties on sugar, luxury cars, publications of violent nature and liquid cosmetic and perfume articles containing ethyl alcohol.
A new law on personal income tax is to be introduced in 2003. Two tax rates – 33 and 15 percent – have been proposed instead of the existing eight. Earnings and income from business activity will be taxed at 33 percent. A 15-percent tax will be charged on dividends, sailors’ and sportsmen’s income, royalties, pension benefits from pension funds and life insurance benefits under contracts of no less than ten years. The tax-exempt minimum income will be raised to 290 percent. Despite earlier promises, the authorities refuse to cut the 33-percent tax rate and, by doing so, to reduce the tax burden. If the said bill is approved, Lithuania will continue to tax labour at the highest rate of all Baltic States (the personal income tax is 26 percent in Estonia and 25 percent in Latvia).
A new law on value added tax is coming into effect on July 1, 2002. According to the law, starting from 2003 VAT will be charged on certain goods that at present are not subject to value added tax, including newspapers and journals, newspaper paper, drugs and medical goods.
Starting from January 2002 a 0.5 percent road tax is charged not on companies’ income from sales but on all income, including interest, income from property rent and currency exchange, subsidies, etc. A road tax on companies’ turnover as such is unjustified and defective. It is imposed on top of other taxes and is not directly related to the use of roads.
A pollution tax on packets will be introduced starting from 2003.
It is planned to introduce a 1.5 percent tax on real estate of private individuals.
