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26.07.2017

Solidarity Tax Continues to Scare the Wealthy

Initially, within the context of tax reform, solidarity tax was to be eliminated; however, this would not come true; moreover, tax rate would grow by one percentage point as its size is linked with the rate of state social insurance contributions. 

This is confirmed by the amendments to the Solidarity Tax Law approved by the Cabinet and handed over to the parliament for review.  As the DB has already written earlier, businessmen hugely criticised introduction of such tax, and the fact that solidarity tax remains in place as an additional source of money for healthcare has struck a large number of business operators. In particular so in the situation when personal income tax undergoes differentiation, and the applicable rates will be 20%, 23% and 31.4%. Furthermore, solidarity tax rate in 2018 will be 35.09%, by one percentage point higher, since it is identical to the rate of state social insurance contribution.

More red tape

According to Ingūna Ābele, tax partner at Primus, the idea behind solidarity tax is to mark and redistribute revenues among diverse national budgets.  When comparing the total tax burden under the same salary level (salaries above EUR 55,000 per annum), according to the tax expert, differences experienced by the employee are not significant. Changes will affect only the tax distribution among expenditure budgets. “A very complicated tax calculation procedure has been created. Mathematically, we would have reached the same result if solidarity tax were eliminated and personal income tax rate for annual salaries above EUR 55,000 were established at 33.5%, as it was suggested previously, and not 31.4%, as it is planned now,” stresses I. Ābele. In her opinion, total tax burden is aligned because part of solidarity tax in the amount of 10.5% is actually treated as personal income tax credit, which reduces the calculated personal income tax for the whole taxation year. “Taking into consideration the projected calculation specificity of personal income tax, PIT rate of 23% is applicable to salary calculated on monthly basis. It is stipulated that PIT is recalculated and PIT rate of 31.4% is applied to income exceeding EUR 55,000 only when the annual PIT declarations are filed. It is not clear why such bureaucratic obligation to file the annual PIT declaration is imposed on high earners, as, after part of solidarity tax has been “requalified” as PIT, no tax surcharges are applicable,” stresses I. Ābele.

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LT-09308, Vilnius

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