Representatives of the World Bank Presented Their Recommendations for Tax Reform at the VU

On November 9, representatives of the World Bank visited the Faculty of Economics and Business Administration. The World Bank economists presented the topic "Which tax system is equitable and conducive to economic growth?"

World Bank economists Munawer Sultan Khwaja, Cristina Savescu, Thiago Scot and Dzelila Kramer, presented their analysis of Lithuania's tax system and their recommendations for tax reform. They presented an analysis of several possible reform scenarios based on the results of a microsimulation of administrative data. The World Bank's modelling tool for assessing possible scenarios for reforming Lithuania's tax system was also introduced.

The researchers presented the World Bank's research using administrative data on personal income tax and corporate income tax in Lithuania. They have also discussed possible topics for future joint research in the area of Lithuanian public finance. State Data Agency (former Department of Statistics) representative Darius Abazorius encouraged to access Agency's collected data for similar research.

According to Dr. Linas Tarasonis, Director of The FEBA's Center for Economic Expertise, the main message of the World Bank economists is that Lithuania is a developed country with a tax system typical of developing countries. According to the experts, the current tax system results in Lithuania's tax base is one of the lowest among Organization for Economic Co-operation and Development (OECD) countries, with one of the largest gaps in value-added tax (VAT). This, in turn, creates long-term underfunding problems in important public sector areas such as education.

World Bank economists suggest that Lithuania should tax all personal income according to its size, rather than according to the activity from which it is derived. They also argue that personal income taxes should be more progressive. Experts also recommend that Lithuania move to a single-rate corporate tax system, as the current system of 15% and a preferential rate of 5% hampers the development of small businesses and encourages businesses to break up into smaller entities.

"We hope that the visit of the World Bank experts and the involvement of Vilnius University in this discussion will accelerate the implementation of the much-needed tax reform in Lithuania", says Mr Tarasonis.