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STATE TAX INSPECTORATE OF THE REPUBLIC OF LITHUANIA MISLEADS TAX PAYERS

Since 1 July 2016 minimum wage (MW) increased from EUR 350 to EUR 380. At the same time personal income tax (PIT) increases as tax-exempt amount of income (TEAI) decreases. Strange as that might seem, there is a public mistake in official document of State Tax Inspectorate (STI) “Regarding changes related to the increase of a minimum wage” (1 July 2016 No. (18.26-31-1E)-RM- 19089) published on official website of STI. Mistake is found in a second paragraph where it is stated that "yearly TEAI in 2016 will not change", "the increase of MW to EUR 380 will not have any influence on monthly TEAI applied". This is either evident mistake or these statements conceal particular information, which is false indeed.

The application of the formula does not change – that is true.

 However, if arithmetical operations applied, instead of TEAI EUR 200 the result is EUR 189.80 (200 - (380 - 350)*0.34 = EUR 189.80), hence TEAI decreases and at the same time PIT increases.

In the Law on Personal Income Tax of the Republic of Lithuania Article 20 the beginning point applied in formula is MW of January 1st, formula is not related to the MW of the current month.

 

1 January 2016 – 30 June 2016

Since 1 July 2016

Wage EUR 350

Personal income tax would be EUR 22.50

Calculation:

TEAI = EUR 200 (if one earns MW)

200 - (350 - 350)*0.34 = EUR 200

(350 - 200)*15% = EUR 22,50

Wage EUR 380

Personal income tax would be EUR 28.53

Calculation:

TEAI = EUR 189.80 (if one earns MW)

200 - (380 - 350)*0.34 = EUR 189.80

(380 – 189.80)*15% = EUR 28.53

 

In other words, if MW would increase this year yet, personal income tax would increase again.

In my opinion, this kind of misleading information, especially since it is published on official website of STI, should be urgently revised or added with explanations.