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2019.10.15 17:15

Lithuanian president weighs in on tax debates

BNS2019.10.15 17:15

Lithuanian President Gitanas Nausėda has offered his views on a number of new tax initiatives from the parliament and the government. A levy on bank assets, polluting cars and a broader property tax are among the proposals.

Read more: Lithuania's Finance Ministry proposes to raise taxes on alcohol, fuel and property

Bank tax in exchange for ending farmers' fuel exemption

President Nausėda has suggested that he would accept the ruling bloc's proposed new taxes on bank assets and retail chains, provided that his own tax initiatives are part of the package.

“I'd like to see a general context, including other tax initiatives, particularly our initiative regarding diesel fuel,” Nausėda said at a news conference on Tuesday.

Read more: Lithuanian banks hit back against proposed tax on their assets

One of Nausėda's main proposals concerns cutting tax exemptions for diesel fuel used in agriculture.

“I think it would be unacceptable, perhaps even harmful, to keep a privilege for a sector that can't complain about a lack of privileges, while additionally taxing two other sectors that don't enjoy any privileges,” he said.

The president did not want to speak about separate taxes “out of context”, the president noted.

“That is wrong, because the logic collapses and it's not clear why these tax initiatives are put forward,” Nausėda said.

The purpose of new tax initiatives is to redistribute a bigger share of the GDP through the government budget “so that we have financial conditions to create a welfare state,” he said.

The president's office has proposed to raise the excise duty on diesel fuel used by farmers to 146 euros per 1,000 liters, from the current 56 euros. It would generate an estimated 17 million euros in additional budget revenue.

MP Zbignev Jedinskij of the Electoral Action of Poles in Lithuania–Christian Families Alliance, a member of the ruling coalition, has drafted a bill to tax assets of banks, credit unions and other lenders in excess of 300 million euros. He proposed a monthly rate of 0.03 percent, which would bring in around 60 million euros annually.

The ruling Farmers and Greens Union also proposes to introduce a new 1-percent monthly tax retail turnover above 2 million euros, to raise an estimated 31.9 million euros per year.

Broader property taxation

President Nausėda also believes it important to expand the real estate tax base, but the government must explain to the public how it will be affected.

“We are now halfway between a selective property tax and a blanket tax on real estate. I believe the taxable threshold has to be further lowered cautiously, but I see some fears among the public,” he said a news conference on Tuesday.

The Finance Ministry's current proposal sees taxing individually-owned properties valued above 100,000, as opposed to the current threshold of 220,000 euros. The president says the change will affect a relatively small part of property owners.

“Even the fiscal figure of that tax proposal is 8 million euros, which shows that the taxation will affect only a very small part of people and that [property] tax bills will probably reach those who own higher-value properties,” he said.

The Finance Ministry estimates that the property tax proposal will bring in some 8 million euros annually for the central government and 1.2 million euros for municipalities.

If the proposal is passed, around 37,000 individual property owners will be subject to the property tax, 26,000 of them in Vilnius. Currently, only 3,500 people pay the property tax.

Taxing cars by value as well as emissions

President Nausėda has also suggested that the proposed car tax be calculated not just according to CO2 emissions, but also engine power and value.

Read more: Lithuanian ministry proposes car pollution tax of up to €1,400

“We do have to gradually tax pollution (...), but on the other hand, we should also think about taxing luxury as well,” he said at Tuesday's news conference.

Tying the tax only to CO2 emissions is not socially sensitive and “increases the taxation of social groups that lack resources”, the president said.

“We proposed combining pollution taxation with a car's engine power or size, or value, which would be more like luxury or higher value taxation,” Nausėda said.

Otherwise, the tax would cancel out other measures aimed at improving the condition of low-earners, according to the president. “I don't see much logic in that.”

The Environment Ministry proposes to introduce a one-off car pollution tax that would depend directly on carbon emissions. The levy could range from several dozen to 1,400 euros. The tax on diesel cars would be several times higher.

The ministry has proposed that the levy be paid each time a car is registered or re-registered.

The tax is expected to be introduced next year and generate 29 million euros of revenue annually, according to the ministry's explanatory note to the Cabinet.

Read more: New car buyers in Lithuania to receive €1,000 subsidy to replace gas-guzzlers

Read more: Lithuanian president pushes for faster pension raises