A COMPARATIVE ANALYSIS OF INDIVIDUAL BUSINESS ACTIVITIES AND EMPLOYMENT RELATIONSHIPS IN THE CONTEXT OF A LAW PRACTICE: ISSUES AND SOLUTIONS

Santrauka

This article provides a critical analysis of the proposed reform of the Republic of Lithuania Law on Personal Income Tax (PIT), with a focus on its negative impact on persons engaged in individual business activities, in particular, lawyers and assistant lawyers as well as representatives of other free professions. The PIT reform is assessed through a comparison between individual business activities and employment relationships, with the main consequences of the reform identified as follows: the proposed combining of passive income (from property sale or lease) and active income (from work, i. e. earnings) and equalised taxation of income irrespective of differences in origin, intensity of effort, and risks will undoubtedly damage economic justice; capital gains under a project would be taxed by up to 36 %, whereas in Latvia or Poland the tax rate is 19–20 % and in Sweden it is 30 %, which means that taxation in Lithuania would be disproportionally high; equal taxation could encourage highly-qualified specialists to relocate to jurisdictions that are more favourable in terms of taxation. Thus, the reform would increase both emigration rates and the size of the shadow economy.

The current tax regime is deemed to be a balanced one. At present, different PIT rates are applied depending on the type of activities: 5–15 % to individual business activities, 20–32 % to income from employment, and 15 % to dividends. It is obvious that the proposed PIT reform is unfounded both legally and economically as it violates the principles of proportionality, fairness and legal certainty. It is recommended that a targeted, proportionate and gradual solution should be implemented having regard to the types of activities as well as risks.