Calculating taxes
Calculating taxes
© Scanpix

Due to the plans to transfer the employer social security contributions to the employee, the minimum wage and non-taxable income levels, tax rates will change. There are fears that these changes wouldn‘t reduce salaries for "to the hands“.

One the things in Saulius Skvernelis Government Program Implementation Plans is to assess the possibility and purposefulness, to transfer a part of employee and employer social security contributions (including compulsory health insurance contributions) to employees as well as merge the personal income tax and a part of the state social insurance contributions.

Minister of Finance Vilius Šapoka had promised to give suggestion about these and other tax proposals announced by the beginning of summer.

At the same time, the unions that are a part of the Tripartite Council already have questions, what kind of impact taxes from the salary reform will have on the minimum monthly wage (MMA), how will the calculation procedure of non-taxable income (NPD) change.

The Tripartite Council were supposed discuss this on the 23rd of May but postponed the question because the time had to be focused on the amendments of the new Labour Code.

Raminta Stanaitytė-Česnulienė, public representative of V. Šapoka, on Wednesday told DELFI that so far they can’t answer questions about MMA and NPD.

MMA of 500 Euros

In a letter sent to DELFI by union chairwoman of Lithuanian Food Producers Gražina Gruzdienė poses a few challenges caused by the new sizes of MMA and NPD.

Now the MMA in Lithuania reaches 380 euros but this amount that is set by the Government excludes the amount paid by the employer of 27.98 per cent to “Sodra”, 3 per cent of compulsory health insurance (PSD) and 0.2 percent of Contributions to the Guarantee Fund.

The full sum of a worker that receives MMA workstation reaches 498.48 euros. Is this the new amount of MMA? What will be the minimum hourly wage then? These questions will have to be answered by the Ministry of Finance.

It is also interesting how the application formula of NPD increased by employer contributions will look. What will be the coefficient?

A large part of the country's workers income received 'into the hand” will depend on the answers to these questions.

Now the applicable monthly NPD per capita is calculated like this: 310 - 0.5 x (resident's monthly pay related with work relations - MMA (380 euros).

Will improve the statistics?

After the merge the increased Lithuanian MMA would be bigger than Polish or Estonian.

However, this increase would be only nominal, when in reality the situation, in the best scenario wouldn’t change.

Chairman of the Lithuanian Trade Union Confederation Artūras Černiauskas told DELFI that if the goal of the Government is only to improve the statistics but not the real situation then the proposed changes are unacceptable.

"We fear that if they will transfer of the social security tax to the shoulders of the employee's, then statistically we’ll jump to the middle, the minimum and average wages will increase by about one-third but in reality everything will remain same" he commented.

A. Černiauskas warned about the risk of double taxation. For example, an employee now pays 6 per cent of PSD and 3 per cent in “Sodra” contributions but 15 per cent of Personal Income Tax (GPM) is taken from the same amount.

"There was an issue in Poland that the same income tax rate was left, which was applied to a larger sum. Now at 27.98 per cent the employer's is not taxed with GPM or PSD in Lithuania, if the sum is added to the income, the amount of tax increases immediately" warned the union representative.

However, A. Černiauskas agreed that the merge will be beneficial for low-income people an people raising children, as their NPD will be applied to a larger amount and that’ll mean a higher salary that they keep.

Towards a more transparent system

Lithuanian Free Market Institute (LFMI) analyst Ieva Valeškaitė has a positive opinion regarding the Government's plans but warned about the potential risks associated with them.

"This progress is towards more transparent tax system" she said.

The responded also noted that in reality there’s no such thing as employer's social security contributions.

"Research shows that if you change employer’s rate, we can see that it immediately shifts to the income. So it’s reducing" said I. Valeškaitė.

LFRI analyst warned that the previously discussed increase of the income tax rate to 21 per cent would be harmful.

"The Government says all other income won’t change, for example, dividends still would be taxed 15 per cent GPM. But there’s a huge risk because the taxes for the rest of the income would increase" said I. Valeškaitė.

Merge of “Sodra” contributions can cause issues for the renewal of employment contracts but it will depend on how the law will be adopted.

Overall, the tax reform will require many changes in the legislation.

"They’ll have to change the Personal Income Tax Act, confirmation of “Sodra” and PSDF budget indicators law, the Guarantee Fund Act, etc" she says.

I. Valeškaitė said, that all changes wouldn’t change "into the hands” pay received by the employee.

She also noticed that nearly 50 per cent of the population doesn’t know what the total cost the employer experiences while paying employee wages and taxes.

A survey done by the public opinion and market research company “Sprinter Research" done in 2017 April 19-26 day and commissioned by DELFI showed these results.

The survey also showed that only 24 per cent of the population agree with the transfer of the employer tax contributions to the employee.

"People don’t realize how much tax is paid and this change might be unclear for them" added I. Valeškaitė.

|Populiariausi straipsniai ir video

Nauseda: Lithuania will have to go back to financial discipline after corona crisis

Once the coronavirus crisis ends and the economic situation gets back to normal, Lithuania will...

3 new coronavirus cases

On Wednesday, 3 new coronavirus cases were recorded in Lithuania. Overall, it adds to 1857 confirmed...

Loop traffic has taken effect in Vilnius Old Town

On 7 July, a new order for arranging traffic in Vilnius Old Town took effect – visitors and...

Self-isolation required for arrivals from 58 worst hit countries

The Ministry of Health has updated the list of countries most affected by coronavirus infection...

Media watchdog bans Russian broadcaster RT (2)

The Radio and Television Commission of Lithuania (LRTK) on Wednesday banned Russia's broadcaster RT...

Top news

Nauseda: Lithuania will have to go back to financial discipline after corona crisis

Once the coronavirus crisis ends and the economic situation gets back to normal, Lithuania will...

Tours operators suspend trips to Bulgaria over coronavirus concerns

Lithuania's tour operators Novaturas and Tez Tour have decided not to organize trips to Bulgaria...

President: Lithuania must defend its haulers' interests 'to the hilt'

Lithuanian President Gitanas Nauseda backs the government's plans to contest the EU Mobility Package...

Loop traffic has taken effect in Vilnius Old Town

On 7 July, a new order for arranging traffic in Vilnius Old Town took effect – visitors and...

Kaunastic discoveries: music in Kaunas this July

Here’s what the Kaunas calendar has to offer, including cumbia, classical music , urban sounds...

|Maža didelių žinių kaina