INCOME TAXATION DEVELOPMENT TRENDS IN THE BALTIC STATES

The three Baltic States were the first to adopt flat tax systems in 1994 and 1995, thus, becoming the first modern countries to apply flat tax structures. The idea of a flat tax, i.e. a tax levied at a single rate, has become an increasingly discussed and implemented fiscal strategy across Europe and the rest of the world afterwards. However, despite some general similarities, the taxation system differs across the Baltic States which has led to the aim of the present research to study the income taxation trends in the Baltic States. The research leads to the conclusion that the Estonian tax system is one of the most liberal and simplest systems even in the world. The most rational income taxes among the Baltic States are observed in Lithuania (15% both CIT and PIT). Estonia and Lithuania have the same PIT and CIT rates, while Latvia applies the most severe PIT rate (24%). Changes in tax revenues and government expenditure occur automatically with a change in the economic situation. This means that the application of fiscal policy instruments may either hinder or promote the tax system development and respectively the development of income taxation. Hence, the basic difference in the taxation systems of the Baltic States include the calculation and application of the tax-exempt minimum, tax reliefs, and flexibility of the system to the changing economic conditions.