Municipalities seek control over income tax and larger ILTE loans

Lithuania’s municipalities are asking the government to let them adjust part of the personal income tax rate they receive, gain a share of corporate tax revenue and increase their borrowing limit from ILTE, LRT reported.

The proposals were presented to Prime Minister Mindaugas Sinkevičius on Friday by the Association of Local Authorities in Lithuania. The association said the measures would help regions become more attractive to businesses and residents while reducing their dependence on central government.

“The time has come to review the entire personal income tax distribution system and make part of this tax an independent source of municipal revenue by introducing two levels: national personal income tax and municipal personal income tax,” association president Audrius Klišonis said.

The association proposes allowing municipalities to adjust the portion of the income tax rate allocated to them. For example, if a resident currently pays a 20 percent rate, 10 percentage points would go to the state, while the municipal share could be reduced to 8 percentage points, bringing the total rate down to 18 percent.

The figures are indicative and would require further discussion, the association said. Municipal budgets are allocated 50.45 percent of all personal income tax revenue this year.

Klišonis said the system would allow municipalities to influence part of their revenue, respond more effectively to regional needs, encourage businesses and offer residents more attractive conditions. In exceptional cases, a municipality could waive part or all of the tax allocated to it to encourage people to settle and work there.

The association also proposes allocating municipalities a share of corporate tax revenue generated by economic growth in their territories. It said this would encourage municipalities to improve business conditions and attract more investment.

It is also seeking a change to the borrowing limit from ILTE, Lithuania’s national development bank. According to the association, municipalities used up the 100 million euro limit announced by ILTE for 2026 to 2029 within several weeks. Only 14 of the country’s 60 municipalities secured loans, financing 42 projects.

Klišonis said ILTE funding had become essential for building and renovating public infrastructure and improving the quality of services. Municipalities had long faced restrictions on borrowing for their own investment projects, he said, while demand for such loans had increased significantly.