“Income tax administration in Lithuania both for businesses and tax collectors is unfathomably complex. There is no need to reinvent the wheel – it would be enough to use Estonia‘s experience in which income tax is paid only when the money is taken out of the company. In Lithuania, even if profits remain in the company, a fee has to be paid. This complicates tax administration and increases state control costs, which are enormous,” said Arūnas Bertašius, the head of German capital logistics company Rhenus Svoris.
Some economists also support the move saying that the introduction of Estonian model in Lithuania would allow the authorities to collect more money for the state budget and entrepreneurs would be more interested in reinvesting their profits.
“Currently, income tax collection is given a lot of resources. Less resources would be needed because business would be less inclined to hide profits. Businesses would still need to be checked, but it would be enough to check only one channel – when money is taken out of the company,” said Marius Dubnikovas, the Lithuanian Business Confederation Tax Commission chairman.
Experts see yet another benefit of Estonian practice – exemption of reinvested profits would improve the country’s competitiveness and encourage foreign investment. Some Lithuanian companies have already relocated to Estonia to take advantage of what they see as more favourable tax conditions.
“This arrangement would encourage foreign businessmen to leave profits in Lithuania and do something more with the money in our country. Businessman would weigh whether it was better to pay the state, or leave money for investment. Foreigners would eventually still withdraw the money and then pay fees.
“A number of Lithuanian businesses have already migrated to Estonia in order to take advantage of this exemption. They will probably never come back but we would not encourage emerging companies to seek a more favourable business environment,” said M.Dubnikovas.