Agricultural reliefs

The National Audit Office conducted an audit to assess efficiency of the application of tax reliefs. Agricultural entities have been included in the taxation system since 2009 with preferential taxation conditions. However, measures and methods for administering the taxes paid by agricultural entities have not been fully evaluated.

“There are 25 agricultural tax reliefs established in Lithuanian tax laws. This means that agricultural entities are subject to lower tax rates, simplified tax schemes, and other reliefs. The state must know the amount of revenue not collected, the reasons of why it is not received, and whether it is appropriate to apply tax reliefs," said Auditor General Giedrė Švedienė. “Tax reliefs mean special taxation conditions, however, proper administration thereof was not provided for before determining these conditions.”

In order to assess whether tax reliefs are applied properly, the number of agricultural entities eligible for these reliefs and the amount of revenue collected from this activity should be estimated. The auditors stated that information on persons engaged in agricultural activities is gathered in three registers, which are owned and managed by different institutions. The purpose of the registers and registration requirements are different. For example, one register contains details of holdings of 197 thousand natural persons, meanwhile another register holds data on the economic size of agricultural holdings or farms of 259 thousand natural persons. Also, registration with two registers out of three is not mandatory and one register allows registration of persons who do not carry out any agricultural activities. For this reason, it is difficult to determine the number of entities who are actually engaged in agricultural activities in Lithuania.

The public auditors also stated that not all agricultural income has been declared, although such obligation is prescribed. The absence of accurate data on the income leads to a situation where tax reliefs are available to persons who are not entitled thereto. The size of income determines the application of three agricultural tax reliefs intended for legal entities and 12 reliefs designed for natural persons.

The audit found failure to use all measures to ensure proper administration of agricultural tax reliefs. Having checked income declarations submitted by several dozens of natural persons to the State Tax Inspectorate (STI) and financial statements submitted thereby to the National Paying Agency (NPA), the auditors found that 84 per cent of the individuals indicated agricultural results lower by LTL 8.7 million in their annual tax declarations. To be eligible for the EU support, natural persons must comply with economic viability indicators, so they may be interested to demonstrate profitable business in the statements submitted to the NPA. However, in order to avoid tax, personal income declarations submitted to the STI may indicate lower income, or even loss-making activity.

The National Audit Office issued recommendations to the STI and the Ministry of Agriculture to help ensure more effective administration of agricultural tax reliefs.