Private persons and companies in Lithuania pay at least twenty-five taxes which are charged on essentially the same object, individuals and their income. These taxes serve to redistribute about 34 percent of the country’s value added. Laws, decrees and other supporting legislation governing Lithuania’s tax system comprise hundreds of pages. They are frequently changed too. Tax payers have to be real tax experts if they want to pay taxes correctly. Instead of focusing on financial issues of their companies, accountants spend the bulk of their work time on meeting tax obligations. Taxpayers’ money is often misused and not necessarily spent on public needs. This creates a hidden tax burden in addition to the direct and indirect tax burdens. The aggregate tax burden reduces people’s welfare and hinders people in satisfying their needs in ways they themselves consider to be the most suitable and appropriate. High taxes cripple individual motivations to work and to own property and reduce Lithuania‘s attractiveness on a global scale.

 

LFMI’s tax reform proposal is designed to create conditions for boosting people’s real income and well-being. The primary task is to implement a systematic reduction of the tax burden and to achieve that taxes are paid at the lowest costs in terms of time and money. The tax system should be based on the following principles: a minimum tax burden, neutral taxation, fairness, clarity, openness, single taxation, and efficient administration. Neutral taxation means that taxes are used as a tool to generate budget revenues, not to regulate the economy; taxes contain no exemptions and allowances, and tax rules do not distort the competitive environment. Tax fairness is understood as a proportional taxation of income earned. Clarity means that taxes do not contradict one another and leave no room for interpretation. Openness means that tax bills are available for public discussion prior to their adoption, and tax payers are given sufficient time to get ready for any changes in tax rules. Single taxation means that the same object is taxed only once. Efficient administration requires that taxes are paid, and budget revenues generated, at the lowest possible cost.

 

If these principles were applied in a coherent manner, a tax system would not contain taxes that are charged on one and the same object, the corporate income tax would be abolished, and the personal income tax would be markedly lowered until its complete removal. For the time being the personal income tax should be proportional. The flawed real estate taxes should be revoked. Given that VAT and excises taxes are harmonized under the European Union’s law, Lithuania should apply the minimum tax rates and eliminate tax exemptions and allowances. Priority should be given to levies and dues which are paid by the tax-payers directly.

 

If Lithuania’s tax system were reformed along these lines, it would boost business and free a significant portion of income for people to spend as they wish and think the most suitable. Tax-payers money would be used to buy a limited, but efficient government. The reform would entail a concurrent privatisation of government functions.

 

In the context of the European Union, Lithuania should speak against tax harmonization, which is usually used to increase the tax burden and limit people’s opportunities to work and to live in a country where they could pay lower taxes.