ABSTRACT
All the Baltic States introduced tax reforms as an important part of their transitions from planned to market economies. Tax reforms played an important role in the adoption of responsible fiscal policies in the 1990s. The first wave of tax reforms introduced a progressive personal income tax (PIT) with rates ranging from 16 to 33 percent. Those rates were replaced in 1994 by a flat PIT of 26 percent. The corporate income tax rate was reduced in 1994 from 35 to 26 percent. The payroll tax was introduced at the rate of 33 percent, which reflected levies for social insurance (20 percent) and health insurance (13 percent), paid by employers. This framework was subsequently modified to facilitate pension reform and the transition to a three pillar pension system. The value added tax was originally introduced with a 10 percent rate, which was raised to 18 percent in 1992. The tax base is relatively wide with only few exemptions.
