This week, the Government approved draft laws on planned tax changes, including amendments to the Personal Income Tax (PIT) Law.
As is known, those in power seek to tax all income of the population at progressive rates, regardless of how it is obtained.
Pensions and other benefits are also income for the population. So how will they be taxed?
Three income tax rates
As already stated, if Seimas will adopt the amendments to the Income Tax Law approved by the Government, income will be taxed according to its size.
The annual portion of income not exceeding 36 times the average national wage (VMU) would be taxed at a 20 percent tax rate.
The portion of income from 36 VMU to 60 VMU would be taxed at a 25 percent tax rate, and higher income would be taxed at a 32 percent tax rate.
In addition, amendments to the law propose to retain preferential tax rates of 5 percent and 15 percent for some income.
It is unlikely that any Lithuanian receives a pension exceeding 3 VMU per month, i.e. 6,9 thousand euros before taxes or 4,2 thousand euros after taxes. In addition, pensions paid from Sodra and the state budget should continue to be tax exempt.
However, the Seimas should also adopt amendments to the Law on Pension Accumulation. These amendments would legalize the possibility of early termination of pension accumulation contracts in the second pillar.
Moreover, over the course of a working career, more than 6,9 thousand euros can be accumulated in a pension fund. So how would these pension benefits be taxed?
Tax upon withdrawal from a pension fund
The draft law approved by the government provides that a 15 percent tax rate is applied to "the portion of the pension benefit received from the pension fund equal to the contributions paid, which were deducted from income in accordance with the procedure established by this law, and also, upon a resident's withdrawal from the pension fund, the pension contributions paid, which were deducted from income, are returned."
The Ministry of Finance informed the news portal tv3.lt that different pension benefits will be taxed differently.
"Regarding pension benefits, it should be noted that neither the proposal presented in the first nor the revised draft of the GPM law affects those pension accumulation benefits that are currently exempt from tax (i.e. they continue to remain exempt from tax).
The revised draft proposes to ensure the application of a 15 percent rate, regardless of the amount of income, to those parts of refundable contributions that are equal to the life insurance or pension accumulation contributions previously deducted from income by taking advantage of the relief provided for in Article 21 of the Income Tax Law, thus maintaining the continuity of the conditions for the application of these reliefs," the ministry stated.
How will other benefits be taxed?
Some time ago, after the government presented its first proposals for tax changes, it became clear that they were planning to tax some Sodra benefits more heavily.
However, it seems that after receiving criticism from residents, as well as the Ministry of Social Security and Labor, for such an idea, the Ministry of Finance changed its mind.
"The revised draft amendments to the Personal Income Tax Law ensure the continuity of the application of the currently valid regulation (15 percent rate) for sickness, maternity, paternity, childcare and long-term employment benefits, after assessing the compensatory function of such benefits and taking into account the fact that they usually compensate only part of the income lost due to illness, the birth of a child or another event," the Ministry of Finance informed.
Thus, unemployment benefits will continue to be the only ones that will not be subject to VAT.
Author: Martynas Žilionis, TV3.lt
