In the light of the ongoing debates over the alternatives of the profit tax application, LFMI and the company RAIT did two representative sociological opinion polls of Lithuanian company owners/executive managers and the public at large.
The opinion poll of the general public aimed at ascertaining if people know that the corporate profit tax is included in the price of goods and services they buy. The results of this survey demonstrated that Lithuanians understand that the burden of the profit tax falls on them rather than on companies. More than half (57 percent) of the Lithuanian population, aged 15-74, think that the profit tax is incorporated into the price of goods and services. Thirteen percent of respondents believe that this tax is not included in the price of goods and services. Thirty percent of those polled did not answer the question at all.
As LFMI‘s Associated Policy Analyst Rūta Vainienė noted, although politicians frequently voice proposals to “make the taxation of companies and individuals uniform,” this poll indicates that the majority of the population do not believe in this fallacy.
“A multitude of people in Lithuania understand the law of tax shifting. There is no separate profit tax - the load of all taxes eventually falls onto the purchaser of goods and services. Seeking to reduce the tax burden for each individual, it is not necessary to cut the personal income tax alone. And vice versa, raising the profit tax would mean an increase in the tax burden for individuals,” – said R. Vainienė.
This representative sociological survey was conducted on September 5-12, 2008 using face-to-face interviews. It is an Omnibus poll. 1,025 permanent Lithuanian inhabitants aged 15 to 74 were interviewed. Statistical error does not exceed 3 percent.
Company owners and executive managers were asked at which stage it would be expedient to tax companies’ profits. According to the existing rules of corporate profit taxation, companies pay a profit tax on income earned and on profits distributed. Seven percent of respondents supported this model of profit taxation.
The results of the survey clearly indicate that the respondents are in consensus that the existing double taxation of profits should be eliminated, but they don’t agree on the direction of the profit tax reform. As mush as 28 percent of those polled reported that neither a profit tax nor a personal income tax should be levied on profits. Twenty-six percent think that profits must be taxed when they are distributed, that is, only dividends. Twenty-five percent were of the opinion that a tax must be imposed only on taxable profits that are calculate based on effective laws at the stage of distribution, while dividends must not be taxed at all.
The survey respondents were asked to imagine a hypothetic situation that the rules of profit taxation have been changed, profits being taxed only once – at the stage of paying out dividends. More than half of Lithuanian companies (58 percent) would use freed funds of the profit tax on investments in technologies or other long-term assets. Even 57 percent of executive managers would allocate additional funds to their employees – for increasing salaries and training. Only five percent of respondents reported they would pay out additional dividends.
Question: Let us suppose that the profit tax has been abolished and the tax is levied only on dividends. Where would you use these extra funds?
LFMI points out that in the period of economic slowdown, lowering taxes becomes crucial. The Institute hopes that the upcoming Government will set forth provisions in its programme on repealing double profit taxation, thus crowning the current active debate on the profit tax reform (some parties have included such promises in their election programmes).
This representative telephone poll of Lithuanian companies has been conducted using a CATI (computer assisted telephone interview) method. The poll was carried out on September 21-30, 2008. 401 company owners/managers or Lithuanian companies were polled. Statistical error does not exceed 4.9%.
