IMF Urges Rebalancing Of Lithuania's Taxes

by Ulrika Lomas, Tax-News.com, Brussels

21 November 2017

The International Monetary Fund (IMF) has called on Lithuania to consider measures that will shift the emphasis of taxation away from labor and towards wealth.

Following the conclusion of the latest IMF staff visit to Lithuania, the Fund noted that the draft 2018 Budget includes measures to make the tax system more progressive, and to reduce preferential tax treatment of certain areas of the economy.

The IMF also observed that tax revenues are being propelled by strong wage growth and consumption, with the budget likely to remain in surplus as a result.

However, IMF staff argued that fiscal policy should "strike the right balance between maintaining a prudent stance and addressing social demands."

"Fiscal structural reforms should focus on growth-friendly measures that will support the authorities' social program," the IMF said in a statement. "On the revenue side, the emphasis should be on rebalancing taxes away from labor towards capital and wealth, and on improving compliance."

Earlier this year, the the IMF noted that Lithuania's tax-to-GDP ratio is one of the lowest in Europe, with about half of the difference relative to the EU average due to tax administration shortcomings and the shadow economy, and another 40 percent being the result of "low tax rates or the absence of certain taxes."

"In terms of tax policy, personal and corporate income tax rates are low and riddled with special schemes," the IMF said. "Wealth and capital income are lightly taxed, especially capital gains in real estate transactions."

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