While Lithuania’s Finance Ministry estimates that the latest tax reform will add around half a billion euros annually to the Defence Fund, experts warn that people may try to avoid higher personal income tax and thwart the government’s revenue plans.
Some economists and financiers interviewed by BNS point out that the pension reform will have a significant but short-term effect of boosting consumption and GDP.
SEB Bank economist Tadas Povilauskas says that the most significant deviation from the government’s forecast will come from the collection of personal income tax as people may change their behaviour to lower their bill.
“We have more risks with the personal income tax as there is a lot of scope and willingness for people to look for ways to reduce the amount of the tax they pay,” the economist told BNS.
Daiva Čibirienė, president of the Lithuanian Association of Accountants and Auditors, notes that some people may change the form of their activities to avoid higher taxes. It is likely that there will be more people who will choose to work with business licenses or set up a small partnership instead of having an individual activity certificate, she said.
“It will not be the case that 100 percent of the population will remain in the same tax payment scheme as in 2025, if their taxes are increased in 2026. [...] Possibly, there will be attempts to hide income or to move it, to change the nature of it,” she told BNS. “We may see tax evasion cases, and we could see large sums.”
However, Čibirienė, points out, the real situation will become clear in 2027 when people file their income tax returns, and then it will be clear how their tax payments have changed.
As for the changes to the corporate tax, Povilauskas says that there are fewer questions about it and that it is likely to raise 135 million euros next year, although there may be some fluctuations.
Meanwhile, Algirdas Bartkus, an economist at Vilnius University, says one of the risks is that foreign investors may choose other countries because of the higher corporate tax.
“Corporate taxes do not play a decisive role in choosing a country to invest in, but when an investor chooses between two or three countries that are equally good, they will make their decision based on where the taxes are the lowest,” Bartkus told BNS.
Next year, Lithuania is raising the corporate income tax rate from 16 to 17 percent (and from 6 to 7 percent for small companies). It remains one of the lowest rates in the EU, behind only Ireland, Hungary, Romania, Bulgaria, and Cyprus.
“There are certain risks also because some people who have assets in Lithuania will not disappear, they will pay taxes, but other people, representatives of free professions, programmers, may think why they are here in Lithuania,” he added.
In June, Lithuanian lawmakers adopted amendments to the personal income tax, corporate tax, real estate tax, introduced the so-called sugar tax and taxed non-life insurance contracts as well as adjusted some value-added tax exemptions.
The amendments have already been signed into law by President Gitanas Nausėda.
Previously, the ministry estimated that the adoption of all tax changes would generate an additional 346 million euros for national defence in 2026 and around 509 million euros annually in 2027 and subsequent years.
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