LITHUANIA: Seimas passes 2012 budget with tax changes

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After weeks of hectic and rather incoherent discussions, on 20 December the Seimas adopted the 2012 budget with a 3% deficit and a number of taxation changes.

The budget revision was necessary to cover almost an LTL 1bn income hole that was produced after the finance ministry lowered the original GDP growth estimate for next year to +2.5% from +4.7% that was used to build the original draft budget with a 2.8% deficit.

Still to be signed into proper law by the President, the approved budget features several taxation and other important changes (next to a 4% cut in almost all spending areas):

- social tax contributions to private pension funds through the Sodra social security fund are to be lowered to 1.5% from the current 2% but should be restored to 2.5% as of 2013. A proposal favoured by the coalition leaders Conservatives and SocDem-led opposition alike to do away with private pension fund contributions for 2012 was blocked by the two co-ruling Liberal parties;

- reduced VAT rates will stay intact for municipal heating (9%) and medications (5%) but will be restored to the regular 21% rate for hotels (from 9%). The final decision on reintroducing a reduced 9% VAT rate for periodical publications is still to be debated. The original idea to raise the standard VAT rate from 21% to 23% to cover the bigger budget income hole with one simple move is no longer discussed;

- rates on the use of state natural resources for commercial purposes will rise by up to three times. The change covers such resources as underground water, anhydrite, dolomite, limestone, construction sand, gravel, peat and clay. The earlier promise to raise these rates gradually to achieve target rates by 2016 is no longer valid;

What still needs to be decided by the Seimas is the introduction of the so-called luxury property tax that seeks to slap a 1% rate for all private property above LTL 1m of value (to be calculated by putting together all the property owned by a household) and the taxation of bank deposit income (the proposed exempt minimum varies from LTL 200 to LTL 1,000 per year).

The Seimas' spring session is likely to be just as exciting with the following list of proposed tax changes: 1) tax on private transport means (cars, motor bikes, yachts, horses), 2) introduction of progressive taxation of personal income, 3) the hike of the corporate income tax from current 15% to 20%.