Lithuania proposes tax increases

Lithuania has proposed tax reforms to boost defense funding, including raising the reduced VAT rate from 9% to 12% for sectors like transport, heating, and tourism, while lowering the VAT on books to 5%. The plan also includes a 1% corporate tax increase and higher income tax rates, with public consultation open until April 30, 2025.

The Lithuanian Ministry of Finance has unveiled a series of tax reforms with the goal of increasing defense spending in response to growing regional security concerns following the Russian invasion of Ukraine.

Central to the proposal is a rise in the reduced VAT rate for certain goods and services. The current 9% rate is set to increase to 12%, impacting areas such as domestic passenger transport, domestic heating, tourist services, catering, and hotel accommodation. Additionally, books and other non-periodical publications would benefit from a shift to a lower 5% VAT rate.

The tax changes extend beyond VAT adjustments. The ministry has proposed a 1% hike in the corporate tax rate, taking it to 17%, alongside increases to income tax rates. These measures aim to secure additional funding to support Lithuania’s defense capabilities amidst heightened geopolitical tensions.

The proposals are now open for public consultation, allowing citizens and stakeholders to share their views until the deadline of April 30, 2025. Once the consultation period ends, the government will review the feedback before implementing the changes.