Lithuania: Proposed VAT Cut on Domestic Heating

Amidst record inflation and the rise in energy prices, the Lithuanian Parliament is returning to February’s proposal to reduce the VAT rate on heating. If the proposal is accepted, the value-added tax on domestic heating will be reduced from the current 21 per cent to 5 per cent.

The proposed VAT cut would be applied to the prices of natural gas and liquefied petroleum gas used to heat households. Similar proposals are currently being discussed in other European countries as the growing energy prices, including a steep rise in the electricity prices, are threatening households as well as businesses.

If the government accepts the proposal, it might come in place already from 1 November 2022.

The main driver of the proposal is the rising inflation, which reached 22% in July – the highest inflation in Lithuania since the economic crisis in 2008. Together with the rising inflation, the country is facing supply chain issues and energy price increases. Lithuania has also become the first country in the EU to withdraw from Russian gas imports completely. This step was taken already in April 2022.

The Lithuanian government has already agreed to dedicate EUR 500mn to 1bn for energy subsidies, which would reach vulnerable households.

Previously, the Parliament has discussed but decided not to move on with cutting VAT on food, like some of the European countries, including Lithuania’s neighbour Poland, did.

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