Lithuania - Politics, government, and taxation

After regaining independence and shedding the imposed communist system (1990), Lithuania is a fully functional parliamentary democracy. The chief of state is the president, and the head of the government is the premier (who is formally appointed by the president, subject to approval by the parliament). The president is directly elected by the people and serves a 5-year term. The parliament, known as the Seimas, has 141 members who are elected for 4-year terms. Of these, 71 are directly elected by the people while 70 are elected by proportional vote.

The current president, Valdas Adamkus, had lived in the United States for 30 years after World War II. The Lithuanian political scene is dominated by 3 groups or forces: right, left, and center. Widely credited with dealing a mortal blow to the Soviet Union and restoring Lithuanian independence in 1990, the Lithuanian Independence Movement (Sajudis) was led by the Lithuanian Conservatives with Vytautas Landsbergis at its helm. Landsbergis became the nation's head of state after independence.

In the fall of 1992, Lithuania set a new trend in the post-communist world as the right-wing forces (Conservatives) lost power to the ex-communist left (Lithuanian Democratic Party of Labor, LDLP). The people's hopes for improvements in living standards were dashed by the hard reality of disastrous and development-retarding communist legacies. In another trend set for the region, the Conservatives returned to power in 1996 but were replaced by the centrist New Policy bloc by 2000; in 2001, the left-leaning government was formed with the ex-communist Algirdas Brazauskas as its leader.

Since independence, all of the Lithuanian governments and political parties have supported the transition processes to markets and democracy. The right or conservative political parties are the Homeland Union and the Conservatives who have joined together in a coalition. These parties are more pro-business and pro-Western. The main centrist group is also a coalition of parties known as the New Policy bloc which includes the Center Union and the Democratic Party. The New Policy bloc supports policies that seek to balance business growth and social welfare programs. The left is made up of the former communist party, the LDLP, and genuine social democrats.

The LDLP is most resistant to transparent and rule-based privatization efforts, preferring the nomenklatura privatization instead. It has also supported increased taxation in order to expand government programs. Overall, due to privatization and other reforming efforts, the government plays a smaller and smaller role in the lives of Lithuanians. In 1997, the main privatization efforts began when the government sold the state-owned telephone company, Lithuanian Telecom. Additional privatization efforts have included the government-owned electric and utility companies. Overall, some 5,714 government-owned companies have been privatized. Still the government continues to own US$2.5 billion in property and businesses.

The government's budget in 1997 was US$1.7 billion, but it only had revenues of US$1.5 billion. The government deficit amounted to US$200 million or about 2.8 percent of the GDP. This situation marks a dramatic decline from the budget deficit of 9 percent of GDP in 1991. In 1999, the government spent US$181 million on defense or about 1.5 percent of the GDP. Lithuania seeks to join the North Atlantic Treaty Organization (NATO) and has worked to participate in NATO-led operations, including the peace-keeping mission in Bosnia. Lithuania receives foreign aid from a number of sources such as the EU and the United States. In 1995, foreign aid amounted to US$228.5 million.

The tax burden (mainly income and value-added taxes ) at some one-third of the GDP is moderate by international standards and will further be reduced as the liberalization progresses. Progress has been made in strengthening and improving the tax administration. This shift will result in the removal of tax arrears and an increase in tax revenue. Further training of staff and improved exchange and processing of information are also needed. While the accession process to the European Union does not involve full harmonization of taxes, still the EU is assisting Lithuania in this process. Tax revenues come from a variety of sources. Goods that are imported into Lithuania face import duties that range from 10 to 100 percent (but average 15 percent on most goods). The highest tariffs are on tobacco, automobiles, jewelry, and gasoline. Corporate tax rates are officially at 24 percent, but incentives designed to draw new companies to Lithuania allow these new firms to reduce their taxes by 70 percent for a period of up to 3 years. The personal income tax level is 33 percent with rates of between 10 to 35 percent on supplemental income from investments or interest dividends.

In an effort to anchor itself in the West and, therefore, ensure its autonomy from Russia, Lithuania has sought to join a number of West European organizations, including NATO and the EU. It is also a member of the World Trade Organization (WTO) which has reduced trade barriers and tariffs among member states. As a small country, Lithuania sees membership in these institutions as a way to protect itself from foreign influences and enhance its economy.