Developments in the Member States

Part II

Lithuania L
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Overall trends in taxation t
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Structure and development of tax revenues
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In 2010, Lithuania exhibits the lowest total tax burden of 27.1 % of GDP (including social contributions) in the
EU. Compared to the two other Baltic countries the Lithuanian tax-to-GDP ratio is close to that of Latvia (27.3 %),
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but 7.1 percentage points lower than the one of Estonia (34.2 %). n
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In terms of revenue structure, Lithuania relies most on indirect taxes (12.1 % of GDP and 44.7 % of total taxation).
VAT revenue in GDP terms increased slightly from 7.4 % in 2009 to 7.9 % in 2010 while revenue from excise
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duties and consumption taxes decreased marginally from 3.5 % to 3.3 %. At the same time, the revenue share of
direct taxes to GDP decreased considerably by 1.3 percentage points compared to the previous year marking the
lowest share of direct taxation in the EU-27. This development is due to the revenue fall from personal income
taxes (from 4.1 % in 2009 to 3.6 % in 2010) and the significant decrease of 44 % in corporate income taxes (from
1.8 % in 2009 to 1 % in 2010). Personal income taxes in GDP terms declined considerably by 53 % from 7.7 % in
2000 to 3.6 % in 2010 due to significant cuts in the flat PIT rate from 33 % to 15 % in the same period. The fall in
corporate taxes reflects the reduction of the general CIT rate from 20 % to 15 % due to advanced payments in
2010. Also revenue from social contributions decreased by 1.2 percentage points of GDP from 11.6 % (2009) to
10.4 % (2010). This development is due to a drop in employers' and employees' contributions from 8.6 % to 7.7 %
and from 2.6 % to 2.3 % respectively.

In Lithuania, the proportion of total tax revenue received by central government of 49.1 % in total taxation lies in
2010 well below the EU-27 average (58.8 %). The local government however receives 11.8 % of total tax revenue,
which is above EU-27 average (10.6 %). Remarkable is the fact that in Lithuania 38.3 % of total tax revenue is
received by the social security funds; this contribution is the sixth highest among the EU Member States.

By observing the development of the tax-to-GDP ratio in Lithuania, one realises that despite remarkable economic
growth from 2000 to 2007 the overall tax burden decreased slightly from 29.9 % to 29.5 % in the same period.
Since then the tax to GDP ratio has declined significantly exhibiting the largest fall of 2.1 % in 2010 in respect to
the year before. This development was not due to the economic cycle as the cyclically adjusted total tax revenue
decreased considerably as well from 30.9 % in 2009 to 29 % in 2010.

Taxation of consumption, labour and capital; environmental taxation

Consumption tax revenue in percent of GDP increased moderately from 11.2 % in 2009 to 11.5 % in 2010. The
ITR on consumption rose significantly by 1.7 percentage points in the same period reaching the highest level since
2000 due to an increase in the standard VAT rate by 2 percentage points as from September 2009. In spite of that
development however the Lithuanian ITR on consumption is the seventh lowest among EU Member States.

Overall, labour taxes are the most important revenue source for the Lithuanian budget and bring in about half of all
tax revenues. The share of labour taxes as a percentage of GDP declined however markedly by 1.6 percentage
points, from 2009 to 2010. In the same vein the ITR on labour decreased from 32.6 % to 31.7 %. At this level the
ITR on labour is slightly below EU average (33.4 %), although it decreased steadily from its 41.2 % peak in 2000,
due notably to the increase in basic tax allowances and the successive cuts in the PIT rate.

In Lithuania, taxes on capital to GDP are the third lowest in the EU, yielding only 35 % of the EU-27 average
(2.3 % versus 6.6 % for the EU-27). In addition, the share of capital taxes decreased significantly from 3.2 %
(2009) to 2.3 % in 2010 due to the cuts in the standard CIT rate and in the reduced rate for small companies. Tax
revenue from capital stocks is also one of the lowest in the EU-27. All of this is reflected in the Lithuanian ITR on
capital, a ratio which decreased substantially by 4.2 percentage points from 11 % in 2009 to 6.8 % in 2010 marking
the highest drop in the ITR on capital since 2000.

Taxation trends in the European Union 117