True Lithuania

Economy of Lithuania

The average Lithuanian is richer than 83% people in the world. He or she earns more than an average person in every nation of Africa, Latin America and most of the countries in Asia. However, Lithuania is lagging behind countries like those of Western Europe, the United States, Canada, Japan or Australia.

Countries richer than Lithuania (GNP per capita 2013) are green in this map while those poorer than Lithuania are red. ©Augustinas Žemaitis.

Among the member-states of the European Union and NATO Lithuania is one of the poorer countries. But it is richer than or on par with other Eastern European members of the said international organizations with the exception of the Czech Republic, Slovakia, and Slovenia.

Lithuania is a post-industrial society with some two-thirds of the population working in the service sector. The society is relatively egalitarian with healthcare, primary and secondary education being funded by the state. Undergraduate, graduate, and postgraduate education is also state-funded for the better students.

However, corruption is a major problem in the healthcare sector as many doctors expect bribes to be paid to them by patients so that they would receive preferential treatment. Corruption is rampant in other sections of the society as well, especially traffic police and government purchases (e.g. road construction for taxpayers' money). These practices are largely a legacy of the Soviet regime. However, Transparency International places Lithuania at some 50th place of 182 countries in its Corruption Perception Index (the higher the place - the less corruption there is), ahead of all states formerly behind the Iron Curtain save for Estonia and Poland (but far behind the West, Japan or Australia).

The largest employer in Lithuania is the MAXIMA group that owns a chain of retail shops well visible in Lithuania as well as Latvia, Estonia, and Bulgaria. This is the largest company in Lithuania and its owner Nerijus Numavičius is the country‘s richest person. Just like many Lithuanian businesses MAXIMA is primarily owned by a single person (or a single family) rather than being a publically traded company.

Largest industries in Lithuania are oil refinement (Mažeikių Nafta in Mažeikiai; 36,2% of total 2011 exports) and fertilizer manufacturing (Lifosa in Kėdainiai and Achema in Jonava; 8,9% of exports). Processed and unprocessed food amount for 16,9% of exports. Traditionally strong clothing industry has been hit by outsourcing to Asia.

The agricultural sector now employs only some 12 percent of the population but they are good at lobbying. Therefore the government generally subsidizes agriculture. The European Union adds to this although the European Union subsidies are significantly lower than for farmers in countries like France. Typically Lithuanian farmers grow grain, pigs, chicken, and cows. The "traditional agriculture" where a family owns a single cow, a single pig and some pastures (rather than combining land to form a large business) is declining but still well entrenched in the Lithuanian countryside. Village tourism offers a new opportunity for Lithuanian farmers and tourists alike.

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Taxes in Lithuania

29% of GNP are redistributed in Lithuania through taxes (European Union average is 38%). While there are many different taxes in Lithuania only a few behemoth taxes brings in the state the most income.

Some 2/5 of Lithuania's state budget is collected as Value Added Tax. The rate is 21% and whenever you buy something in Lithuania this is added to the price (there is a mechanism of VAT return if the same thing is resold several times so that VAT is typically paid only once).

1/5 of the national budget is collected in personal income tax. This is deceiving however as much of income taxation goes to other budgets (municipal and social), some of it even formally considered to be other taxes. The true burden is big: every employer has to pay the state almost as much money as it pays the employees (i.e. 40%-50% actual income tax). While nominally a flat rate the income tax is actually progressive as the untaxed portion gradually decreases as the salary increases.

Company income tax (known as Profit tax) is 15%, with additional 20% on most dividends paid to natural persons (meaning 33% effective tax rate on dividends).

Excise duties make the third largest income for the state (1/5). Fuels, electricity, tobacco and alcohol are additionally taxed this way. The European Union typically requires high excise duties so Lithuania was forced to increase them. For this reason, car fuel in Lithuania is nearly double as expensive as in the USA where there is no excise.

The Real Estate tax is paid only by companies and owners of real estate deemed expensive (0,3% to 3% of value annually). Land tax is paid by every owner(0,01%-4%). Municipalities decide the actual percentage but the "value" here is the official value which may be lower than the market value. There are no other property taxes.

There is no inheritance tax for the close-of-kin.

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