| Abstract [eng] |
The research shows that over the past two decades the Lithuanian PIT system has undergone a significant transformation: from a proportional model focused on attracting investment and ensuring administrative simplicity to a fully progressive system established by the 2026 reform. Changes in tax rates and the non taxable income amount (NPD) had uneven effects across income groups — increases in the NPD most benefited low income earners, while the introduction of progressive rates increased the tax burden for higher income individuals. From the perspective of budget revenues, the NPD reduced PIT inflows, although the strengthening of progressivity partially offset this effect. The analysis of self employment taxation revealed that the 2026 reform fundamentally reshaped the tax environment for self employed individuals. Income aggregation, progressive rates, and the PIT credit applied up to the €42,500 threshold reduced the tax burden for lower income earners but significantly increased it for those whose income exceeds the established limits. The reform also triggered behavioural changes — shifting activity to legal entities, income capping, or splitting activities — indicating a breach of the tax neutrality principle. Evaluating the reform through the lens of tax law principles shows that vertical equity has been strengthened, while horizontal equity and neutrality remain problematic due to differentiated taxation of income types and a fragmented rate structure. In the context of the European Union, the reform brings Lithuania closer to the prevailing trend of narrowing tax advantages for the self employed and aligning their taxation with that of employees. However, risks remain that overly strict taxation of self employment income may hinder innovation and the retention of highly skilled labour. In summary, the PIT reform aims to enhance fairness and rebalance the system, yet it simultaneously reveals significant challenges related to tax neutrality, administrative burden, and distortions in economic behaviour. |
