„Given the geopolitical situation, Russia’s increased investment in the military industry and the fact that Lithuania is located on the border of the European Union, we must do everything we can to ensure Lithuania’s security and deter the enemy from ideas to set foot in our country. I am delighted that the Seimas has managed to mobilise and adopt the Defence Fund package prepared by us, which will ensure the necessary level of defence funding and preparedness for threats, and will strengthen both air and ground defence capabilities,“ Minister Skaistė noted.
Tax decisions of the Defence Fund
The corporate income tax decisions include raising the corporate income tax rate for business by 1 pp. from the current 15% to16 % and increasing the reduced corporate income tax rate for small companies by 1 pp. to 6%, as well as withdrawing of sectoral corporate income tax exemptions for health care institutions and life insurance companies and the limitation of the car purchase price and rental cost deduction in relation to the CO2 emissions of the car, thus also contributing to the achievement of environmental (the Green Deal) objectives. These decisions will provide an additional EUR 37 million for the Defence Fund in 2025, and more than EUR 132 million in 2026-2027 each year.
The largest part of the Defence Fund package consists of excise decisions: additional excise duties on alcohol and tobacco, which will contribute to the three-year excise plan and a 6-cent (part of excise duty + VAT) defence component per litre for petrol, diesel, green diesel for farmers, oil gas and other energy products within two years. These decisions will allow the Defence Fund to secure an additional almost EUR 87 million in 2025, more than EUR 168 million in 2026, and EUR 186 million in 2027.
On Tuesday, the Seimas also approved another component of the Defence Fund, the Solidarity Contribution. It has been extended by one year until 2026, thus maintaining the logic of the contribution as a temporary solution to the significant increase in the profits of financial institutions, which was mainly driven by economic and geopolitical factors and responses in the last two years, rather than business decisions. The extension of the solidarity contribution by one year will generate EUR 60 million for the Defence Fund. 110 Members of the Seimas voted in favour of the amendments to the Law on the Temporary Solidarity Contribution, with one vote against and 10 abstentions.
The concept of the Security Contribution – a 10% contribution on insurance contracts without applying it to life insurance and civil liability insurance of natural persons – has been submitted for public consultation by 21 June. As the regulation is completely new, the concept, unlike other proposed decisions, is first presented to the public and then a draft law will be drawn up. This decision will generate an additional EUR 50 million in 2025, and EUR 100 million each year in 2026-2027.
In total, the decisions of the Defence Fund will ensure additional funding of almost EUR 259 million in 2025, more than EUR 425 million in 2026, and almost EUR 444 million in 2027.
Defence and civil protection needs and additional decisions
According to the data of the Ministry of National Defence, defence funding needs for the next five-year period are composed of fixed and variable components. A steady and continuous need to reach 3% of GDP in 2025 and to maintain this level of financing by 2030 will require an additional 0.5% of GDP per year. This will be EUR 400 million in 2025, EUR 440 million in 2027. These needs will be addressed by the proposed Defence Fund decisions. The additional variable component need until 2030 amounts to up to EUR 50 million per year. These needs are to be met by borrowing through defence bonds and notes, with a possibility to be acquired not only by natural persons but also by legal entities and by establishing that the cost of borrowing may not exceed 2%.
For the implementation of civil protection strengthening and development needs, it is proposed to channel EUR 25 million of personal income tax (PIT) revenue per year from economic growth received by municipalities to the implementation of the civil protection strengthening and development programme: the development of shelter infrastructure; prevention and preparedness initiatives; provision of supplies for uninterrupted activities and for ensuring needs of the population.
It should be noted that on the initiative of Prime Minister Ingrida Šimonytė, three meetings with representatives of parliamentary parties, trade unions and employers’ associations and three consultations with social partners (business, trade unions and NGOs representatives) were held in search of a broad consensus on possible decisions to increase defence funding. Based on consultations-discussions, „traffic lights“ for possible decisions were formed, and the format of proposals was agreed – additional revenue decisions would be provided in the form of a separate law on the national defence fund. The Defence Fund approved today by the Seimas, which consists mainly of proposals that have received broad support from political parties, business, trade unions and NGOs, ensures the implementation of defence needs.