After the Finance Ministry has unveiled its income tax reform proposal which would introduce progressive rates, President Gitanas Nausėda says the top rate is “too high” and believes the tax’s “progressiveness should be moderate”.
“A rate of up to 36 percent has been proposed, but I think that’s too high for high earners. Capping it at 32 percent would be more reasonable, especially considering tax competition in the region,” Nausėda told LRT TV on Thursday.
Under the proposal, the top rate would apply to income above 10 times the average wage. Dividends would be excluded.
“If we’re serious about attracting qualified professionals and creating attractive jobs, the level of progressiveness should be moderate and stay within reasonable limits,” the president said.
“I’ve always supported that, because Lithuania needs a growing economy,” he added.
In 2019 and again in 2024, President Nausėda ran on a platform focusing on building a “welfare state” and doing more for the least well-off in the society.
The Finance Ministry is proposing four personal income tax rates ranging from 20 to 36 percent, in an effort to make the system more progressive. The rates would be based on total annual income from all sources, excluding distributed profits:
- 20% on income up to 3 times the national average
- 25% on income between 3 and 5 times the national average
- 32% on income between 5 and 10 times the national average
- 36% on income above 10 times the national average
Finance Minister Rimantas Šadžius told BNS in an interview on Wednesday that most workers – members of the middle class – would not feel the effects of the rate hike.
The ministry is also proposing a 10-percent tax on all non-life insurance contracts, except for mandatory motor third party liability insurance.
The package also includes raising the corporate income tax rate by one percentage point to 17 percent and increasing the reduced rate to 7 percent.
The president said he does not think the proposed tax changes would trigger a recession, but he believes that the ruling bloc should have held broader discussions with interest groups.
“What I still find lacking today is an open and honest conversation with the business community, with its various organisations, and with trade unions. In a sense, the announcement came a bit too early. [The government] could have held more in-depth discussions with different interest groups before making [the package] public and moving toward a decision,” Nausėda said.
“Now, it was done in a way that many businesspeople would probably say was jumping the gun,” he added.
If all the proposals are adopted, the government expects to collect an additional 248.7 million euros for the central and municipal budgets next year and 624.6 million euros in 2027.
Currently, Lithuania’s personal income tax stands at 20% on income up to 5 times the national average and 32% on income above that. Lower rates exist for capital income, self-employment income and various other kinds.
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