Fiscal Policy

The law on stamp duty, which is charged for services rendered or legal documents issued by state institutions, delegates to the government the task of setting the rates of stamp duties but does not put any limits on them. The charging of stamp duties fails to meet its purpose of covering the costs of actions taken by state institutions. Speculative stamp duty tariffs have come to be used as tools for regulating the economy and curbing competitiveness. In early March, the LFMI developed a project of amendments to the stamp duty legislation, which proposes that the size of stamp duty tally with the costs of services rendered or documents issued by state institutions. The LFMI's project proposes new rules of calculating and paying stamp duties.

The LFMI's project received unanimous approval from the LIC and the Interdepartmental Council. The Economic Ministry is now preparing a formal submission of the proposed changes, a prospect likely to spur a policy action aimed at redesigning stamp duty regulations. Leontjeva's testimony was to the effect that the government resolved to charge a uniform stamp duty for licences extended to passenger transportation companies.

Enforced in January 1995, the stamp duty legislation replaced all state levies except for the one charged by the Patent Bureau. Drawing on its tax reform initiative, the LFMI submitted, along with the stamp duty proposal, a policy paper urging to repeal all state levies and to charge stamp duties for all services provided and documents issued by state institutions.

The LFMI's initiative proved to be timely given that the Finance Ministry had been instructed to draw a legislative proposal on state levies. The LFMI will continue to work against any suggestions and policy actions designed to introduce new state levies.

The Ministry of Administrative Reforms and Local Authorities proposed a draft law introducing a state levy on the registration of industrial property by the Patent Bureau. In a policy paper, which was submitted alongside the package on stamp duty and state levies, the LFMI argued that the levy charged on the registration of industrial property is, in its essence, stamp duty. If the integrity of the tax and legal systems is to be preserved, the LFMI insisted, stamp duties must be charged on all services, including the registration of industrial property, provided by state institutions.

As a result of these policy advocacy efforts, the ministry called off the draft and drew a project of amendments to the functioning provisions regulating the registration of industrial property.

According to the Lithuanian Constitution, taxes and other payments to the state budget are established by laws. Yet, the tax base, tax rates and rules are in many cases set by executive authorities, which provide arbitrary interpretations of the existing rules. Lithuanian enterprises were to pay corporation tax by February 10. On January 15, however, the Finance Ministry issued a decree which outlined new rules of calculating corporation tax. Rūta Vainienė criticised sharply the practice of the "shadow tax law" and the new rules in the February 10 Respublika.

As a response to the criticism, the Finance Ministry's press service issued a press release (Respublika, February 12) and initiated revision of the newly adopted procedures.

In late 1997, the LFMI presented at a major conference a conceptual proposal for a pro-liberal tax and budget reform. In addition to the media exposures which appeared right after the event, the proposal was presented in Respublika, January 5, the Russian-language Echo Litvy, January 3, and the January issue of the Sąskaityba journal. An article on Lithuanian opinion leaders' views on tax reform was reprinted in the January 15 Lietuvos Aidas daily from The Free Market No. 6, 1997. The tax reform proposal from The Free Market was mentioned in the Spring 1998 Highlights of the Atlas Economic Research Foundation. The LFMI's proposal continues to attract public attention and to provoke official debates.

Drawing on the LFMI's opposition to the introduction of new taxes and increased tax burden, Rūta Vainienė criticised the government's plans to impose taxes on prestigious neighbourhoods in the January 12 Lietuvos Rytas and the February 19 Veidas magazine.

Financial Infrastructure

In October 1997, at the request of parliamentary committees, the LFMI developed a package of comprehensive recommendations for revising the new privatisation bill. The proposals were submitted to Prime Minister Vagnorius and the parliamentary committees. Despite significant improvements of the forms of privatisation, there remained a need for increased procedural transparency, automatic release of property for privatisation, and clear-cut criteria and terms of privatisation.

The privatisation of the Lithuanian Telecom, which was originally scheduled to take place in May 1998, provoked intense public debates. The draft telecommunications law proposes a five-year monopoly to the purchaser of the telecom. In the first quarter of 1998, the government introduced local telephone rates estimated on a per-minute basis. These decisions are widely viewed as measures designed to augment the telecom's price tag. The LFMI presented to the government and society at large its position on the telecom's privatisation, the introduction of local telephone rates, and the new telecommunications law. The LFMI came out in opposition to the government's plans to monopolise the telecommunications market, arguing that privatisation is "not about converting a state monopoly into a private one, but about creating market conditions." The LFMI embarked on an extensive public campaign to disseminate this position.

The privatisation of the telecom may be put off until September due to bureaucratic obstacles in reorganising the Communications Ministry and the delay in submitting the draft law on telecommunications to parliament. The bill is expected to be debated in parliament in May. The position of the authorities may have been shaken by political protests over the introduction of local phone rates and the administration's introduction of subsidies for certain categories of consumers. It is anticipated that the stock package may bring in only two billion dollars instead of the desired four billion.

The LFMI was one of the first groups in Lithuania to promote the idea of private pension funds. The LFMI drew up an alternative draft law on pension funds and contributed largely to the improvement of the draft proposed by the Social Welfare Ministry. The LFMI participated in the ministerial policy-drafting group and submitted a number of proposals and comments. The LFMI advocated fully-funded pension insurance based on a defined-contributions scheme, a maximum reliance on market mechanisms, extensive investment in wide-ranging financial instruments, and internal risk control as the cornerstones of a credible and sustainable operation of pension funds.

As a result of the policy advocacy, part of the recommendations from the LFMI were incorporated in the draft, but some provisions continue to demand revision. The draft law on pension funds is scheduled for submission to the government in late April. The LFMI will take steps to influence the policy-making process and governmental debates. The LFMI will keep advocating a simple and transparent system of pension funds and the creation of equal conditions for open and employer-sponsored pension funds.

Private Enterprise

The LFMI analysed the rules of opening and disposing bank accounts, concluding that they impose petty regulations on enterprises' relationships with commercial banks. Ugnius Trumpa contributed a series of articles and comments to the press, including the January 14 Verslo Žinios, January 15 Lietuvos Rytas and Litas, January 16 Respublika, January 20 Apskaitos Aktualijos, January 22 Lietuvos Aidas, and January 19 Šiaulių Kraštas.

In response, the Bank of Lithuania worked out new rules of opening bank accounts, which are about to be adopted.

The LFMI analysed the Finance Ministry's new regulations of bills of lading, passed in October 1997 and designed to control the flows of goods within the country for smuggling prevention. LFMI's Vice President Ugnius Trumpa commented extensively in mass media, stressing that the new procedures "threaten to curb the freedom of business undertakings and will fail to fend off the spread of contraband." Ugnius Trumpa appeared in the January 8 Lietuvos Aidas, February 23 Verslo Žinios, February 24 Apskaitos Aktualijos, and Mokesčių Žinios, February 23-March 3.

Ugnius Trumpa commented on the new form of accounting of working hours in the March 18 Verslo Žinios and February 25 Vakarų Ekspresas. He was cited about the Finance Ministry's proposed list of reliable economic entities drawn for customs purposes in the February 10 Respublika. Trumpa appeared about the amendments to the money laundering legislation proposed by the Finance and Justice Ministries as well as the Bank of Lithuania in the February 23 Verslo Žinios.

The government submitted to parliament a package of amendments to the law on joint stock companies. The LFMI analysed the proposed amendments and developed a policy paper outlining their defects. The LFMI criticised the provisions requiring that enterprises reincorporate after the new amendments came into effect, restricting borrowing and lending by enterprises, and allowing companies to use fixed assets to repay their debts to the budgets.

The amendments were passed by parliament after long debates on March 19 and were signed into effect by Parliament Chairman Vytautas Landsbergis after President Adamkus rejected it. The new provisions came into effect on April 17. The parliament overruled the requirement to reincorporate enterprises and limited the term of repaying enterprises' debts with fixed assets until the year 2000. However, it failed to lift the restrictions on interest rates on loans received by enterprises from their shareholders. The legislation states that interest on loans cannot exceed the average interest rates on appropriate time deposits paid by banks by more than 50 percent. In addition to that, dividends on preferred stock were restricted, rendering preferred shares a nominal instrument.

Remigijus Šimašius published an article ("Konkurencija. Kaip ją išsaugoti?") about the nature and essence of free competition in the LFMI's newsletter, The Free Market. This article was reprinted by Kauno Diena, January 29, Atgimimas, February 13, and Litas, March 12. Šimašius was cited about competition in the January 22 Lietuvos Rytas. Šimašius spoke about competition and antidumping on Radiocentras radio, January 14, Znad Wilii radio, January 19, and Lietuvos radio, February 4.

The LFMI continued to promote its approach to the problems impeding business growth in Lithuania. The LFMI advocates the removal of barriers to market entry and operational constraints and the creation of equal, favourable conditions for all businesses as a basis for business growth and private sector development. The LFMI came out in opposition to any corporate welfare programmes and fragmentary, arbitrary relief as measures which discriminate against those without political favours, undermine competitiveness and distort motivations.

The Economic Ministry brought forward a proposal to establish a state-run loan insurance company that would extend guarantees for loans taken by small and medium-sized enterprises. Elena Leontjeva criticised this proposal in the February 27 Verslo Žinios and March 10 Respublika. The LFMI's president insisted that private entities must assume all responsibility for their liabilities and opposed budgetary financing of said company.

Elena Leontjeva, Ugnius Trumpa and Rūta Vainienė were invited by the Management Training Centre at the Kaunas Technical University to a seminar with the business community, academia and state officials in Panevėžys. The LFMI's members delivered papers on tax and budget policy, monetary issues, privatisation, and business development. The seminar was highlighted in the February 19 Panevėžio Rytas and Sekundė papers as well as on PAN television.

Monetary Policy

The LFMI continues to advocate reliance on strict, rule-bound monetary policy protected from political pressure under a currency board arrangement.

According to the Monetary Policy Programme of the Bank of Lithuania, Lithuania is to phase out the currency board and restore traditional central banking in the coming years.

Other areas

The Communications and Informatics Ministry submitted to the government a draft law on state postal service. The LFMI's analysis showed that the law would monopolise the market by giving the state postal service exceptional rights to provide a number of services. This would undermine competitiveness, lead to economic and technological stagnation of postal services and force consumers to use expensive and often unacceptable services. In addition to that, the draft provided for unjustifiable permanent public financing of the Lithuanian Post. Elena Leontjeva submitted to the January 28 cabinet meeting a policy paper indicating the arguments against the draft and urging the government to reject it.

After debates, the government suspended the draft, pending for the submission of a revised version by the ministry.

Elena Leontjeva was requested by President Adamkus to evaluate a draft law on land lease. Leontjeva submitted to the president a policy paper indicating the defects of the draft and proposals for its improvement, March 10. President Adamkus suspended the signing of the law and returned it to parliament for revision.

After debates, the parliament adopted all recommendations proposed by the president. The parliament extended the term of land lease to 99 years instead of 25 years proposed by the authors of the draft on the point that such a short term would discourage private initiative and impede the development of economic activity.

The LFMI was called a "sophisticated" and "high-profile" NGO in the Winter 1998 issue of NGO News of Freedom House.

In early 1998, Elena Leontjeva was invited to evaluate Lithuania's 1997 economic performance in a number of media, including Lietuvos Rytas, January 3, Verslo Žinios, January 5, and Litovskij Kurjer, January No 2. She was also interviewed about the country's economic affairs on Free Europe radio, February 13, and Vilnius television, January 31.