An exciting discussion with the head of the Lithuanian tax authorities (STI) Edita Janušiene. The just adopted Lithuanian tax reform is a nice reason to have a chat on what’s new and why.

Watch the episode here.

From the conversation I noted for myself:

  • STI did not expect so quick tax reform.
    • Edita was hoping for application of the same Personal Income Tax rates to all kind of revenues, but too many exemptions were still left in the law.
    • Real estate tax in some places will increase 2-3x as the tax base gets close to the market values. However, the safety-net for many families will be a high non-taxable value for its main property.
  • The tax gap has been reduced significantly from 24% in 2018 to 14% in 2022.
    • 7-8 years ago ‘under the table’ salaries were a problem, but not so much anymore. Maybe still in construction and smaller companies. But then they changed the law on the social security contributions.
    • At the end of this year all cash registers will send information to STI in real time – as the transaction happens. This will reduce the grey economy even more.
    • One of the reasons for the tax gap might be a large amount of self-employed individuals (~200k) who are not VAT payers and may have a lot of payments in cash. In Latvia and Estonia (each) this number is closer to 90k.
    • IMF will have a project on how to improve VAT collection.
    • 1/3 of VAT gap exists in the trade sector – 70k of companies and 70k individuals.
    • Last year STI sent questionnaires to 8k smaller companies which thus amended their tax returns and paid EUR ~7m in taxes.
    • STI will present new ICON system for detection of VAT fraud to the next IOTA conference (where the EU tax authorities meet).
    • The missing traders’ cases is a waste of time – even if they are taken to the court, the budget gets from them close to nothing as they formally don’t own anything. We discussed what could be changed in that respect.
  • EU funding will help with a new digital platform at STI.
  • Also a new software (with AI elements) will help more VAT fraud detection, VAT declarations’ evaluation in real time. ~1500 enterprises thus have brought some EUR 19m VAT to the budget since the last September.
  • 10 years ago the STI changed their attitude from controller to supporter of taxpayers.
  • The tax dispute committee helps to avoid that too many disputes go to the courts. Their decisions can be appealed, but quite often are not, because the parties trust the committee took a wise decision. However, currently it is on the table of the Ministry of Finance to improve neutrality of the committee issue. Currently it consists of ex tax officials, but in other countries it normally consists of 3 parties: authorities, business and academia.
  • Edita’s management gurus are Simon Sinek and Peter Drucker. I relate to Edita’s philosophy of a constant learning and development throughout the career, even while being at this such a high post. That may be inspiring for the others as well.
  • The trust of companies to STI is 78.8% – the highest ever.
    • Previously STI had 60 agreements with associations – it was difficult to manage them. Now it’s a consultation board where some main associations send their representatives.
    • For the trust of taxpayers STI tries to use simple language in communication.
  • STI has a Large Taxpayers’ dptm for 720 companies (that bring ~44% of the tax revenues), as well as for ~200 high net worth individuals.
  • The main focus of the tax system changes should be on simplifying the tax law. The more exemptions the more complex the system becomes.

It’s interesting and flattering that Edita Janušiene often also asked my opinion on many issues we discussed.

If you quote the interview, a reference to the Tax Stories podcast is mandatory.