With Lithuania’s Finance Ministry forecasting that the latest tax reform will contribute around 340 million euros to the Defense Fund next year and more than 500 million euros annually in the following years, experts warn that the biggest deviations from these projections may stem from changes to personal income tax, as they could prompt individuals to alter their behavior to avoid higher tax burdens.
Several economists and financial experts interviewed by BNS note that the pension reform is expected to have a significant but short-term effect by boosting consumption, which in turn will positively impact gross domestic product (GDP) growth.
SEB Bank economist Tadas Povilauskas says that the most significant deviation from the government’s forecast will likely come from personal income tax collection, as it will largely depend on how people respond to the changes.
“We face more risks with personal income tax, as there is both scope and willingness among people to seek ways to reduce the taxes they owe,” Povilauskas told BNS.
Daiva Cibirienė, president of the Lithuanian Association of Accountants and Auditors, notes that some individuals may change the legal form of their economic activities to minimize their tax liabilities. She predicts a likely increase in people opting for business licenses or setting up small partnerships instead of operating under individual activity certificates.
“It won’t be the case that 100 percent of taxpayers will remain in the same payment scheme in 2026 as in 2025 if their taxes increase,” she told BNS. “There is a real possibility of attempts to conceal income, shift it, or change its nature. We may see cases of tax evasion involving large sums.”
However, Cibirienė added that the actual impact will only become evident in 2027 when people file their income tax returns, at which point changes in payment behavior will be more apparent.
As for changes to corporate income tax, Povilauskas believes they will be less controversial and estimates they will bring in about 135 million euros in 2026, although some fluctuations may occur.
Meanwhile, Algirdas Bartkus, an economist at Vilnius University, highlights the risk that higher corporate taxes could drive away foreign investors.
“Corporate tax rates are not the primary factor in choosing an investment destination, but when investors are deciding between two or three equally attractive countries, taxes can become the decisive factor,” Bartkus told BNS.
“There are also risks that while some people with assets in Lithuania will remain and pay taxes, others — such as freelancers and IT professionals — may question why they should stay,” he added.
In June, Lithuanian lawmakers adopted amendments to the personal income tax, corporate income tax, and real estate tax. They also introduced a so-called “sugar tax,” levied non-life insurance contracts, and adjusted certain value-added tax (VAT) exemptions.
The amendments have already been signed into law by President Gitanas Nausėda.
The Finance Ministry had previously estimated that the full package of tax changes would generate an additional 346 million euros for national defense in 2026 and approximately 509 million euros annually from 2027 onward.
Source: BNS
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