Lithuanian Prime Minister supports controversial VAT cut proposal

“This is my position – to reduce the general VAT tax. For now, that’s my opinion,” the prime minister said in the Seimas on Thursday.

Seimas members Valerijus Simulikas and Eduardas Šablinskas suggested reducing the VAT tax from 21 to 19 percent in February. According to them, this would reduce the prices of food products and other vital neccessities, which would in turn increase consumption.

However, Andrius Kubilius, the leader of the Seimas opposition group, said that the Prime Minister’s comments were related to support for the candidacy of Minister of Finance Rimantas Šadžius for the European Court of Auditors.

“Now, before the elections, I don’t really believe in what the Prime Minister is saying. His words were part of market-like negotiations between the Social Democrats and the Labour Party for the Labour Party’s support of Rimantas Šadžius’ candidacy for the European Court of Auditors. The Labour Party has demanded that he support one of their projects in return, for VAT exemptions or the increase of tax-free income,” said Kubilius.

At the beginning of the financial crisis, the VAT was increased by three percent to the current 21 percent. At the time, it was claimed that the VAT increase would be temporary, and that it was a necessary measure for the government to survive the crisis.

According to the Lithuanian Free Market Institute (LFMI), the reduction of the VAT by one percent would cost about €133 million. Therefore, they count shows that a 3-percent reduction would cost about €400 millions.

Žilvinas Šilėnas, the president of the LFMI, said that the VAT should be reduced to its pre-crisis levels. “That money would stay in the people’s pockets. That’s much better than money in the budget. Let’s not forget that people will still spend that money,” he said.