Analysis of the tax burden in the forestry sector in Lithuania

An analysis shows that private companies operating in the forestry sector are the most heavily taxed in comparison to other sectors analyzed. The main difference between these tax burdens is created due to 5% tax on income from round-wood sold. Furthermore, companies working in the agricultural sector are eligible to tax exemptions or lower tax rates (for example profit and fuel excise taxes). In comparison to other analysed countries this total tax burden of 24.9% is of the highest, matched only by Sweden‘s 25.1%. In this modeled scenario, Latvia has the lowest overall tax burden out of countries analysed.

The case is very similar with state-owned companies in forestry sector, which have way higher tax burden (32.6%) in comparison to other analysed sectors. This tax burden is way higher in comparison to private companies working forestry as well, again due to a tax on income from logs sold. It also should be noted, that state-owned companies pay higher rate of the aforementioned tax – 15%. Due to this the tax burden for state-owned forestry companies is highest out of the countries analysed, with Sweden in the second place with tax burden lower by 7.5%.

In conclusion, Lithuanian forestry companies suffer highest tax burden in the sectors and countries analysed (with exception for Swedish private companies). The key identified difference is the tax on income from logs sold. As this tax is applied on income, not profit, the negative effect on competitiveness of Lithuanian forestry companies is imminent (also, it should be noted, that Poland has a similar tax as well, however, the analysis shows that the overall burden is still significantly lower than in Lithuania). On the other hand, this tax should provide incentive for companies to produce higher value added products (the tax is applied to logs, not timber products). However, to answer the question of whether the overall impact of this tax is positive or negative, a separate analysis should be carried out. 

From HD Forest we agree there is a 5% felling tax in Lithuania, but as there is more growth in Lithuania compared to Latvia and Estonia, Thus we see no significant difference in the rate of return of forest Investments among the three Baltic States. 

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