Lithuania’s Ministry of Finance announced that it is planning a stronger programme to reduce the country’s shadow economy and VAT gap, with a specific target of bringing the VAT gap down to no more than 10% in 2026–2027 and 9% in 2028. The planned strategy focuses on three key areas: prevention and detection of tax violations, voluntary tax compliance, and cooperation between domestic institutions and international authorities.
Main Measures to Reduce VAT Gap
According to the European Commission, Lithuania’s VAT gap was 13.2% in 2024, significantly above the latest EU average of 9.5% recorded in 2023. The government estimates that reducing the VAT gap to 10% could generate approximately EUR 196 million in additional VAT revenue in 2026. This estimate is based on CASE data suggesting that each percentage-point reduction in Lithuania’s VAT gap is worth around EUR 70 million in additional revenue.
To achieve this, the government plans to identify tax risk earlier, make it easier for businesses and individuals that already intend to comply to meet their obligations through voluntary tax compliance, and address tax evasion and other cross-border activities by increasing cooperation between national and international authorities.
Accordingly, Lithuania is planning to make tax administration more data-driven and proactive, giving the State Tax Inspectorate (STI) and Customs greater ability to use existing data and technology to identify tax and customs risks. One proposed change would give the STI greater authority to correct VAT returns proactively. Where the Tax Authority has sufficient reliable information showing that a taxable person’s return contains inaccuracies, it could correct the return itself rather than waiting for the taxable person to correct.
Another major measure concerns e-invoicing. From July 1, 2030, e-invoices are expected to become mandatory not only for intra-EU transactions but also for domestic transactions. Additionally, Customs authorities could receive additional tools to investigate potential violations and, in certain circumstances, restrict customs formalities or impose measures designed to ensure compliance.
Several additional measures are still under consideration. These include revising the criteria for determining whether a taxable person is considered reliable, introducing more comprehensive measures against deliberate tax evasion, strengthening enforcement against repeated sanctions violations, and improving controls over the circulation of tobacco and nicotine products.
Conclusion
Lithuania's comprehensive strategy combines strict enforcement with modern, data-driven solutions to curb tax evasion. By leveraging proactive risk identification, mandating domestic and cross-border e-invoicing, and fostering voluntary compliance, the government aims to significantly narrow its VAT gap and secure crucial tax revenue for the coming years.
