The leaders of associations uniting Lithuanian and foreign capital companies operating in the country have approached the government, calling for immediate discussions with business organizations regarding planned tax changes. Representatives from the Investors’ Forum association, the Unicorns Lithuania association, the Lithuanian Employers’ Confederation, the Lithuanian Confederation of Industrialists, the Lithuanian Chamber of Commerce, Industry and Crafts, and the Lithuanian Business Confederation note that national security is the highest priority and that increasing funding for the country’s defense is necessary.

Considering the geopolitical situation and the country’s commitments to sustainably and rapidly increase defense funding, business organizations propose increasing the value-added tax (VAT) by 1 percentage point and introducing a universal tax on residential real estate, which is the least harmful to economic growth. The collected funds should be exclusively allocated for defense funding.

Organization leaders emphasize that more funds for defense should be allocated by promoting and accelerating the growth of the Lithuanian economy and propose collecting at least €500 million for defense through the least harmful, broadest-based taxes to economic growth. The government is also invited to commit to reducing state expenditures in all areas by 5 percentage points and to assess the favorable fiscal position of Lithuania and utilize borrowing mechanisms for defense needs.

“There are serious doubts about whether the possible tax changes discussed in the media will achieve the main goal – to collect the necessary funds for Lithuania’s defense as quickly as possible. We hear that the government is inclined to increase corporate and personal income tax rates, which have the greatest impact on economic growth. In these already difficult times, the proposed changes may significantly weaken the country’s competitiveness. In the long run, such a policy would lead to a decrease in gross domestic product, which would, in turn, reduce funding for defense,” says Vidmantas Janulevičius, president of the Lithuanian Confederation of Industrialists.

According to the authors of the appeal, the publicly discussed increase in the corporate tax rate and the introduction of a progressive personal income tax may cause more harm to the state than benefit.

“Lithuania already collects more revenue from personal income tax today than the average OECD country, which is not, among other things, likely at war. Raising the tax would increase the risk of emigration of qualified labor, and significantly increasing the taxation of high incomes would lead to capital contraction or slower growth in Lithuania. This would result in lower investments, slower labor productivity growth, and slower wage growth. Not to mention the very poor signal we are sending to the international investor community when talking about tax increases during times of economic and geopolitical uncertainty, instead of promoting the competitiveness of the state economy. Competitiveness and economic growth should be the main measures to increase defense funding,” comments Rolandas Valiūnas, chairman of the Investors’ Forum association.

Business association leaders are confident that the same applies when discussing possible plans to increase the corporate tax rate from 16 to 18 percent. “The tax was already increased by one percentage point last year, so the proposed further drastic increase will negatively affect the investment climate. Moreover, the greatest negative impact of the corporate tax increase is felt by employees receiving the lowest wages working in lower value-added sectors. Ultimately, the arithmetically calculated additional revenues would not be so large and would not cover the required defense funding needs,” emphasizes Andrius Romanovskis, president of the Lithuanian Business Confederation.

Business organization representatives point out that a universal real estate tax is a much better alternative than other competitiveness-damaging tax solutions currently being publicly discussed. This tax does not encourage emigration, cannot be transferred abroad, and is easy and cheap to administer. In many Western European countries, the real estate tax is one of the main sources of budget revenue, but in Lithuania, it is still fragmented and limited. In any case, if the state plans to introduce new taxes, they should be broad-based and based on the principle of universality. We consider the practice of addressing challenges that are important to everyone and every resident of our state at the expense of certain societal groups as flawed.

The leaders of Lithuania’s largest business organizations also critically evaluate the possible proposal to tax insurance premiums, noting that more than half of the insurance services consumers in Lithuania are business companies. Therefore, the tax on insurance premiums would be yet another business tax, which would also negatively affect Lithuania’s competitiveness.

In turn, the sugar tax would add about €25 million to the budget. The fiscal impact of such a tax is very minor compared to the costs of administration, implementation complexity, and increasing administrative burden on a small part of the business, so business representatives also do not support the sugar tax.

According to the authors of the appeal, there is also concern about the tax change preparation process itself when the public representatives learn about significant changes from information leaked to the media. Business organization leaders hope for constructive dialogue when planning such important and significant decisions impacting the country’s competitiveness and business environment.