Residential taxation under consideration: the Ministry has proposed three alternatives to Žygimantas Gedvila / 15min photo / Cars near apartment buildings
Gytis Kapsevičius Business Journalist
At a meeting of the Working Party on the Review of Tax Benefits on Wednesday, alternatives to non-commercial taxation of RE were discussed. Today, 150 000 people apply to a resident's real estate. 2008 — The amount of the exemption is eur 100000000. The Ministry proposes to grant concessions to the main dwelling, but to tax the remaining non-commercial property, such as gardens, garages.
According to Rūta Bilkštytė, Deputy Minister of Finance, who presented the proposals of the Ministry of Finance, it is proposed to change the current tax regime for non-commercial real estate (RE). It is proposed to tax from a certain threshold all real-time real-life housing held by the resident, leaving an exception for the main dwelling. The main dwelling place is defined as the property acquired by the resident by right of ownership and should have his/her registered place of residence. It is proposed that tax rates could be set by law or chosen by individual municipalities according to predetermined tariff ranges.
The bar for tax-free real-time re-entry is now set at 150,000. the threshold of EUR 100000 This amount has previously been reduced from EUR 250 000 in 2000 to EUR 250 000 in 2008. Euro. If Lithuania were to stay on the current RE taxation model, it would be considered whether the re-tax bar held by the co-resident should not be lowered even further to EUR 100 000. Euro. The ministry's proposal would be to grant relief to the main dwelling, while the tax would be on all remaining non-commercial assets of the resident above the threshold. Several classes of buildings are included in such property, such as gardens, garages, farm, greenhouse, farm, religious, recreational buildings, etc. "Then there is no difference where the resident is registered, it is important that he has non-commercial property. These assets would be put together in one amount and taxed," said R. Bilkštytė.
On the table are three alternatives to the group meeting and three alternatives to the current housing tax regime. Under current tax laws, $5.3 million was raised last year. Euro. The first is to apply a lower tax rate to housing following the example of Finland and Poland. For socially sensitive groups, such a tax could be further reduced until the first realm of the real transfer, for example in the case of inheritance. Under this option, if the rate were 0.01%, a total of EUR 3.5 million could be budgeted. Euro. Applying the NT rate of 0,01 to 0,1 % to the remaining NT could generate a further EUR 17,9 million. Euro. According to the ministry' representatives, such a model would prevent the artificial transfer of REAL, but at the same time it is noticeable that the new regime could increase social tensions. The second option is to exempt the main dwelling completely without attaching to its value. Such a relief, according to R. Bilkštytė, would be easy to understand for residents and easy to administer. Its minuses are that it would not be socially oriented and would not encourage regional development, but would be received by the population with the most expensive housing benefits. "The application of the exemption would not be proportionate, as some could benefit from lower value housing, others from higher ones. Therefore, a third alternative is proposed", said R. Bilkštytė,
This option would tax all real estate of a resident, with the exception of the main dwelling, depending on its value. The amounts of the tax-free RE could be determined on the basis of specific municipalities. Under this option, if the rate were between 0.01% and 0.1%, a total of around EUR 10 million could be budgeted. Euro. It is estimated that according to this alternative, vilnius city and district, Klaipėda district and Neringa municipalities would increase their income the most (from 2 to 4 per cent). Kaunas district, Trakai and Druskininkai municipalities would increase their income by 1.5–2 per cent. Only one municipality in Akmenė would receive nothing from such a procedure.
With the advantages of this proposal, the Ministry of Finance sees the strengthening of the interest of municipalities by improving the tax conditions determining the value of real estate. The disadvantages of such a proposal are the risk of increasing social tensions. Giedrius Lingė, advisor to the Association of Lithuanian Municipalities on municipal financial and economic issues, said that the real estate tax is one of the best sources of income, and the existing model applied has many drawbacks. Today, the tax-free amount applied to a person makes it possible to artificially reduce tax receipts or the value of the assets held. "The potential from this tax is certainly considerable, given the foreign experience, much more significant amounts would be collected. There are not many other real possibilities to increase the independent sources of funds of municipalities. Taxation of commercial property is already like universal and there is no reserve to expand its base. "There is still a tax on residential real estate," he said. Julius Kalinskas / 15min./Vilnius The most attractive alternative for G. Linge appeared to be the taxation of the main house at a lower rate, however, he noted that this rate should be higher than 0.01%. The question of the level of tariffs is to be considered, but such an alternative would be quite attractive. The option of not taxing housing at all should not be considered," he said. Raimundas Kuodis, Deputy Chairman of the Board of the Bank of Lithuania, stressed that many tax models in the country cannot be arranged without "social pop". The property tax, he said, is another victim of this. The economist added that allowing municipalities to decide on taxation for themselves would create a conflict of interest and allow them to start competing for the lowest taxes.
"We need a broad base – this means that we tax the real values of assets. How to extract them is my old proposal to look at the practices of other countries, where a resident can declare the value of the property himself, but the state could, plus 20%, buy that property. If you say that housing is worth EUR 1000, the state could buy it for EUR 1200. A couple of such publicized cases would be enough and the jockeys would disappear," said R. Kuodis. He added that this was a model expressed a couple of decades ago, then proposed in search of ways to collect value added tax (VAT) from unscrupulous businessmen importing goods into Lithuania. R.Kuodis also advocated the introduction of higher RE taxes, as they could make asset management more efficient. "Although financially illiterate Lithuanians say that property does not ask to eat, it asks to eat. We would avoid people simply sitting in possession of property and waiting for it to be expensive. If they were to face the problem of property prices and had to pay 100 euros or something, residents would start thinking about whether they needed that property," the economist said. Elena Leontjeva, President of the Lithuanian Free Market Institute (LLRI), said that the tax rates of 0.01-0.1% chosen by the Ministry of Finance as an example are low and it may happen that a large part of the revenue collected will be eaten up by administrative costs. It also pointed out that, although the group's objective is to reduce the number of preferences, the proposed arrangements could further increase this indicator.
"The other thing is that the real estate itself doesn't generate the income needed to pay that tax. Lithuania ranks first in the EU in terms of the number of pensioners who own real estate. For those people, it's going to be a big concern about how to generate income. It's no secret that today and younger people buy a second and third housing as their future pension "fund". And when we see that the activities of normal funds are constantly being narrowed down, people are looking for their own solutions," said E.Leontyeva. She added that while the reform would give greater power to self-government, the topic could become a significant tool on the political battlefield, both in the upcoming municipal elections and in the Sejm elections. "If we want to increase the financial autonomy of municipalities, it should not be forgotten that there is a huge redistribution every year. It should be ensured that redistribution rates are stable and predictable every year. The second issue with this is the connection of circular municipalities, because the question will arise that people work in one place and live elsewhere. These issues are very important and need to be addressed," the economist commented. The ministry has six strands of the review of the tax system – the promotion of reinvestment of profits, the Green Deal, the reduction of income inequality, the review of special taxation conditions and preferences, the model of investment and long-term saving instruments, and the strengthening of the financial autonomy of self-government. This group meeting was the penultimate of the six scheduled.
Source: Residential taxation under consideration: Ministry proposes three alternatives | Business | 15min.lt