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Lithuania Harmonises VAT Regime With EU

by Ulrika Lomas, Tax-News.com, Brussels

16 November 2001

An IMF mission to Lithuania yesterday said it had reached preliminary agreement with the Lithuanian authorities on a supplementary memorandum of economic policies for the remainder of 2001 and for 2002. The mission, headed by Patricia Alonso-Gamo, adviser to the director of the IMF's European II Department, gave a positive assessment of Lithuania's macroeconomic policies, reform efforts and economic prospects.

"The supplementary memorandum of economic policies confirms the tax reform proposals of the (Prime Minister Algirdas) Brazauskas government, which aim at broadening the tax base and simplifying the tax system, removing exemptions and reducing rates in a revenue neutral way, better balancing taxation of labour and capital, and harmonizing tax legislation with that of the European Union," the mission said in the statement.

Indeed, just this week the Lithuanian government approved a draft VAT law bringing its tax regime into compliance with EU standards. The law, effective from 1 July 2002, is yet to be approved by the parliament; it establishes a new standard VAT rate of 18% and simplifies tax declaration and payment procedures. Exports are zero-rated, and there are lower rates for medical supplies and 'social' construction.

The new law is aimed at bringing Lithuania's VAT legislation into line with EU regulations by 2004, the year when the country expects to be ready to join the EU, the government's press office said.

Agricultural services provided by farming cooperatives, and securities portfolio management, consulting and market research services, as well as funeral services will be exempt from VAT until 2004. Enterprises employing disabled persons will also be eligible for VAT relief until 2004.

The government also proposes to leave in place the existing VAT exemption for publishing, printing and circulation of newspapers, magazines and books, as well as for paper used in print media, and medications.

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