STI history

 

THE DEVELOPMENT OF TAX ADMINISTRATION IN LITHUANIA

 

The concept of taxes

 

As defined in the Law on Tax Administration of the Republic of Lithuania, tax shall mean a pecuniary obligation in respect of the state imposed on the taxpayer.

Taxes and owned assets constitute the economic basis of the state. In the classical era, taxes were paid by gold, silver, livestock, as well as vegetable products: grain, oil, wine, etc.

The most modern form of taxes – money – existed already 2000 years ago in the Near East and is described in the Bible: "...show me the coin used for the tax!" When they handed him a denarius, he asked, "Whose picture and title are stamped on it?" "Caesar's," they replied. "Well then," Jesus said, "give to Caesar what belongs to Caesar, and give to God what belongs to God." (Mt 22,15-21)

It is significant that since the very old times taxes were considered as a necessary and inevitable duty.

The State Tax Inspectorate fulfils the principal function of tax administration in Lithuania.

The beginning of taxes in Europe                                                                                  

Already long ago European countries used to collect taxes. They could be paid not only by money, but also by livestock, a share of annual harvest or labour force. Teutons voluntarily paid honorary charges, whereas Romans had the so-called head tax that was obligatory.

Taxes, as they are perceived today, existed in Germany since the Early Middle Ages. In the 8th c. Charlemagne introduced a church tax – a tithe. A one-tenth part of something (e.g. harvest) had to be paid. In the Late Middle Ages, this tax was supplemented by a land tax, the amount whereof was established according to the size of the land plot owned. In the 15th c. the first consumer taxes, applied to many food products, were introduced. The 19th c. was the beginning of calculation of taxes according to economic capacity.

The beginning of taxes in the Grand Duchy of Lithuania

Before the 16th c. the nature of finance was barter. The first taxes (charges) were dėkla (paid in crop production) and mezliava (paid in livestock farming production). The grand duke collected both taxes and tributes

Taxes in cash appeared under the reign of Grand Duke Kęstutis, when mintage of coins started in Lithuania, and especially at the end of the 14th c., when subsistence economy transformed into commodity-cash economy. However, at the beginning of the 15th c., under the reign of Vytautas the Great, the majority of taxes were still paid in grain, livestock, horses, honey, wax, or the fur of ground game. In addition to taxes in kind, taxes in cash – silver tax, rent, capitation tax, etc. – became increasingly popular.

Under the reign of Jogaila and Vytautas the Great, taxes were sometimes paid in roubles that came from Slavonic countries; yet they were not shaped as coins, but rather as cut pieces of silver. Since the times of Algirdas and Kęstutis, Czech groschen circulated in Lithuania; they were real coins, one being a sixtieth part of a rouble. Lithuanian denarius, which appeared around 1387–1390, also circulated.

In 1591, the Court of Treasury was established; in 1613, the Treasury Tribunal was opened and functioned until 1764. It examined tax related cases and inspected the reports of a treasurer. The Seimas fixed taxes. The issues of political regime and taxes were decided by a unanimous vote, whereas other matters by a majority vote.

In 1649, a small state padūmė tax was introduced. As of 1676, the peasants of state manors were taxed by a hiberna tax to cover military expenditure in the winter season. The hiberna tax was abolished in 1775. It was replaced by a half padūmė (from a courtyard) tax. The owners of state manors were taxed (starting with 1590) by a quarter tax, or ¼ of state manors.

At the end of the 18th c., due to shortage of funds, a double quarter tax was collected. In 1662, capitation taxes were introduced and subsequently paid in accordance with special resolutions of the Seimas. The capitation tax was charged on each individual. It was also obligatory for the clergy and sometimes even for the noblemen.

Deprived of statehood                                                    

The year 1795 witnessed the third and last partition of the Polish-Lithuanian Commonwealth (a Polish-Lithuanian federal state which existed since 1569). On 24 October 1795, Russia, Prussia and Austria signed an agreement in St. Petersburg, whereby the lands to the River Nemunas inhabited by Lithuanians since the very old times were annexed to Russia. Lithuania was deprived of its budget and taxation system.

On 1 August 1914, Germany declared war on Russia. During World War I, Lithuania was occupied by Germans and remained the operations area until the end of the war.

The form of the key taxes remained the same throughout both periods of occupation:

  1. Land tax
  2. Tax on rent or rent value
  3. Trade and industry business tax

Two decades of independence

After the independent State of Lithuania was restored in 1918, one of the first official documents was the declaration of a Provisional Government, an appeal to the nation, proclaiming: "Taxes shall be charged on property […]. The larger the property, the bigger the amount of taxes to be paid."

On 11 November 1918, lawyer Martynas Yčas was appointed as the first Minister of Finance. He also fulfilled the function of a chief tax inspector. Tax inspectors and their assistants, tax commissions and excise controllers were appointed to cities and counties. The Tax Department functioned under the Ministry of Finance, not as an independent authority; therefore, actually the Minister of Finance was the Chief Tax Administrator.

The first tax document adopted on 23 January 1919 was the Order on Taxes which regulated tax payment in the post-war period in order to avoid upheaval. Tax laws followed shortly afterwards: "On Stamp Tax", "Law on Recreation and Entertainment Tax", "Provisional Regulations of Excise Taxes", "Law on the Procedure of Collection of State Taxes", "Law on Supplementary State Tax from Trade and Industry Establishments", "Law on State Legacy Tax", "Law on State Tax on Immovable Property in Cities and Towns", "Law on State Land Tax", "Law on the Unit of Currency", "Law on Tax on Profits from Trade, Industry, Credit and Crafts", "Law on Land Taxes"; particular attention was paid to customs duty rates.

Direct taxes included the land tax, immovable property tax, principal business tax, supplementary tax from trade and industry establishments, inheritance tax and liberal professions tax. Indirect taxes encompassed various excise duties on beverages, tobacco, yeast, matches, precious metals, as well as income from customs duties.

Municipalities and state enterprises (post office, railway, telegraph, etc.) had their own revenues; the latter collected fees.

Occupation years

On 15 June 1940, Lithuania's occupation began. In a couple of months, the Ministry of Finance was reorganised into the Lithuanian SSR People's Commissariat for Finance.

On 1 January 1941, capitalist elements were charged with the income tax of 4–60%, while the cooperative sector – 1–38%. In November 1941, the corporate income tax was increased by 50–100% for private trade and industry enterprises; and by 25% for craftsmen who had employees.

In 1941, the functioning of the Lithuanian SSR People's Commissariat for Finance was discontinued by the German occupation.

In 1944–45, Lithuania was again occupied by the Red Army and Lithuania's finance system was incorporated in the Soviet Union finance system.

Residents' taxes were reduced during the post-war period in the Soviet Union. In 1946, the military tax was abolished; in 1953, the agricultural tax was basically reorganised; obligatory delivery of agricultural production to the state was abolished as of 1958.

A personal income tax (non-taxable minimum amount was 70 roubles per month) was a gradual progression tax (from 0.35% to 13% on the part of income exceeding 100 roubles).

The following local fees were collected as of 1981 and changed many times: the building and land owner's fee and the vehicle owner's fee. In 1987, local fees and charges constituted 31 million roubles in the state budget of Lithuania.

The development of the tax inspectorate in Independent Lithuania

After re-establishment of the State of Lithuania, Resolution No. 92 "On State Tax Inspectorates" of the Government of the Republic of Lithuania was adopted on 10 April 1990. The document envisaged the establishment of a State Tax Inspectorate within the central structure of the Ministry of Finance upon closing of the State Revenue Division and the establishment of city and district state tax inspectorates instead of executive committee finance divisions.

On 20 April 1990, in order to implement this resolution, Minister of Finance of the Republic of Lithuania Romualdas Sikorskis issued Order No. 13 "On State Tax Inspectorates", whereby he instructed the heads of executive committee finance divisions to reorganise divisions and assign part of functions and staff positions to state tax inspectorates, while another part to municipalities.

The Law on the State Tax Inspectorate of the Republic of Lithuania, adopted on 26 June 1990, regulated the work of the State Tax Inspectorate and stipulated its functions and rights as well as responsibilities of its officials. The law was effective until 28 June 1995, when it was replaced by the Law on Tax Administration of the Republic of Lithuania.

55 state tax inspectorates were established throughout Lithuania: 11 city inspectorates and 44 district inspectorates.

The State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania as a separate legal person was established on 1 October 1995.

It was important for a young state that Lithuania's institutions were accepted in international organisations, thus Lithuania's joining IOTA, the Intra-European Organisation of Tax Administrations, was a significant step.

The administrative reform was carried out in 1998–1999; 10 county state tax inspectorates subordinate to the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania were established.

In 2004, declaration of residents' income was implemented for the first time; the electronic declaration system was developed and implemented.

On 13 April 2004, the new Law on Tax Administration of the Republic of Lithuania was adopted.

On 1 April 2006, the Tax Information Centre was opened. Residents may call 1882 to receive consultations on taxes, report on shadow economy, illegal employment, etc.

In 2011, competence centres were established in the State Tax Inspectorate: Tax Information, Debt Administration, Tax Accounting, Excise Duty Administration, Selection and Audit Support.

TOP MANAGEMENT OF TAX ADMINISTRATION

On 11 November 1918, in the independent Republic of Lithuania, lawyer Martynas Yčas was appointed as the Minister of Finance. He was the Chief Tax Inspector (11.11.1918–05.03.1919), one of the first founders of Lithuanian banking and industry.

Tax inspectors and their assistants, tax commissions and excise controllers were appointed to cities and counties. After the first Minister of Finance departed to work abroad, his functions were factually performed by:

Voldemaras Vytautas Čarneckis, Administrator of the Ministry of Finance (26.12.1918–12.03.1919),

Vytautas Petrulis, Administrator of the Ministry of Finance (12.03.1919–12.04.1919),

Jonas Vileišis, Minister of Finance (12.04.1919–07.10.1919).

 

On 17 November 1919, the Law on Merging the Ministry of Trade and Industry with the Ministry of Finance was passed and the new institution was named the Ministry of Finance, Trade and Industry. It was managed by:

Jonas Dobkevičius (02.02.1922–21.08.1922); also the Acting Minister of Finance, Trade and Industry in 1921,

Vytautas Petrulis (22.08.1922–19.09.1925), also the Prime Minister in 04.02.1925–19.09.1925,

Petras Karvelis (25.09.1925–31.05.1926 and 17.12.1926–19.09.1929),

Albinas Rimka (15.06.1926–17.12.1926),

Juozas Tūbelis (23.09.1929–24.03.1938),

Julius Indrišiūnas (24.03.1938–27.03.1939),

Jonas Sutkus (28.03.1939–21.11.1939),

Ernestas Galvanauskas (Galvanauskis) (21.11.1939–15.06.1940).

 

Heads of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania after the State of Lithuania was re-established:

Vytautas Jurna (18.04.1990–01.05.1991),

Jonas Lionginas (01.05.1991–07.02.1994),

Stasys Čipkus (01.02.1994–13.03.1995).

 

Heads of the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania:

Petras Navikas (13.03.1995–06.06.1996),

Antanas Nesteckis (08.07.1996–31.12.1996),

Nijolė Pitrėnienė (31.12.1996–31.12.1998),

Jaunius Žiogas (29.03.1999–23.07.1999),

Artūras Bakšinskas (06.09.1999–20.07.2000),

Henrikas Tamulis (20.07.2000–23.10.2000),

Mindaugas Strumskis (23.10.2000–31.05.2002),

Jurgis Gurauskas (03.06.2002–05.09.2002),

Violeta Latvienė (05.09.2002–27.07.2005),

Modestas Kaseliauskas (04.10.2005–30.06.2014).

 

KEY DATES

26.12.1918

Declaration of the Provisional Government, laying down tax rates

23.01.1919

Order on Taxes – the first document of Independent Lithuania regulating tax payment in the post-war period in order to avoid upheaval

27.03.1919

Law on Recreation and Entertainment Tax

27.03.1919

Law on Stamp Tax

08.05.1919

Provisional Rate of Lithuanian Customs

05.07.1919

Provisional Regulations of Excise Taxes

10.09.1919

Order on the Rating of Apartment, Room and House Rent Prices in Cities and Towns

06.09.1919

Provisional Rules on the Collection of a Special Fee for Using Lithuanian Inland Waterways

30.09.1919

Law on Trade Regulation

21.10.1919

Law on Progressive Tax on Recreation and Entertainment for the Purpose of Charity

17.11.1919

Law on Merging the Ministry of Trade and Industry with the Ministry of Finance

14.11.1919

Law on the Procedure of Collection of State Taxes, regulating tax administration; the predecessor of the current Law on Tax Administration

30.11.1919

Law on Supplementary State Tax from Trade and Industry Establishments, corresponding to the current Law on Value Added Tax

05.12.1919

Law on State Legacy Tax, the predecessor of the current Law on Inheritance Tax

12.12.1919

Law on State Tax on Immovable Property in Cities and Towns, corresponding to the current Law on Immovable Property Tax

10.01.1920

Provisional Law on the Rights of Jewish Community Councils to Impose Taxes on Jewish Residents

15.03.1920

Law on Insured Property Tax

14.05.1920

Law on State Land Tax

07.01.1921

Law on Requisitions and Exceptional Taxes

22.03.1921

Law on General Income Tax of Craft, Credit, Trade and Industry Establishments

16.08.1922

Law on the Unit of Currency; Litas is introduced.

25.10.1923

Law on Land Taxes

07.05.1924

Law on Ship Customs Duty

27.05.1924

Law on Apartment Rent in Cities

06.06.1924

Law on Recreation Tax

24.07.1924

Law on the Tax on Profits from Trade, Industry, Credit and Crafts

30.07.1924

Law on Municipal Taxes

24.07.1924

Law on the Accounting Books of Trade, Industry and Credit Establishments

1924

Rules for Fixing Automobile and Motorcycle Tax for the Benefit of Municipalities

15.06.1940

Lithuania's occupation starts; the Russian Soviet Army crosses the Lithuanian border at 3 p.m.

08.1940

The Ministry of Finance is reorganised into the Lithuanian SSR People's Commissariat for Finance.

1941

The functioning of the Lithuanian SSR People's Commissariat for Finance is discontinued by the German occupation.

1944–1945

Lithuania is again occupied by the Red Army and its finance system is incorporated in the Soviet Union finance system.

26.06.1990

31.07.1990

05.10.1990

Law on the State Tax Inspectorate is adopted.

Law on Taxes on Profits of Legal Persons of the Republic of Lithuania is adopted.

Provisional Law on Income Tax of Natural Persons of the Republic of Lithuania is adopted.

25.06.1992

Law on Land Tax of the Republic of Lithuania is adopted.

20.07.1994

 

22.12.1994

Law on the Tax on the Immovable Property of Enterprises and Organisations of the Republic of Lithuania is adopted.

Law No. 1-729 introduces declaration of residents' property and income.

28.06.1995

Law on Tax Administration is adopted.

25.07.1995

 

 

The State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania is established as a separate legal person.

1996

Lithuania becomes a member of IOTA, the Intra-European Organisation of Tax Administrations.

05.05.1997

The first treaty concerning mutual assistance in the field of administration is signed with the Revenue Service of the Republic of Latvia.

1998

IOTA Assembly is organised in Vilnius.

1998

The first comments to tax laws are published.

1998-1999

10 county state tax inspectorates subordinate to the central tax administrator, the State Tax Inspectorate under the Ministry of Finance of the Republic of Lithuania, are established.

12.04.1994

Law on Excise Duty of the Republic of Lithuania is adopted.

20.12.2001

Law on Corporate Income Tax of the Republic of Lithuania is adopted.

22.12.1993

Law on Value Added Tax of the Republic of Lithuania is adopted.

02.07.2002

Law on Personal Income Tax of the Republic of Lithuania is adopted.

2004

 

07.06.2005

Residents' income declaration through an e-declaration system is implemented for the first time.

Law on Immovable Property Tax of the Republic of Lithuania is adopted.

2006

The campaign "Don't take the envelope wage", aiming to curb shadow economy, commences.

01.04.2006

The Tax Information Centre is opened.

2006

Coordination Councils for interinstitutional cooperation in combatting economic and financial crime start functioning in counties.

2010

Tax Duty Departments are established in counties.

25.02.2010

The Strategy Ensuring Fulfilment of Tax Duties by Taxpayers and Tax Collection and the Plan of Measures Ensuring Consolidated Tax Payment are presented.

2011

The STI system is reorganised by establishing competence centres: Tax Information, Debt Administration, Tax Accounting, Excise Duty Administration, Selection and Audit Support.