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Official Translation Official Translation REPUBLIC OF LITHUANIA LAW ON THE METHODOLOGY OF DETERMINATION OF MUNICIPAL BUDGETARY REVENUES July 2, 1997. No. VIII - 385 FIRST SECTION GENERAL PROVISIONS ARTICLE 1. Purpose of Law This Law shall establish the sources of revenue of municipal budgets and procedure of calculation, confirmation and transfer of the subsidies allocated from the state budget to municipal budgets. SECOND SECTION MUNICIPAL BUDGETARY REVENUE ARTICLE 2. Municipal Budgetary Revenue 1. The municipal budgetary revenue shall consist of: 1) tax revenue; 2) non tax-derived revenue; 3) subsidies. 2. The sum of the funds borrowed by municipalities shall be indicated in the revenue section of municipal budgets. ARTICLE 3. The Composition of Municipal Budgetary Tax Revenue The following tax revenue shall be assigned to the municipal budgets: 1) personal income tax of natural persons, following deduction of the funds allocated to the compulsory health insurance fund in accordance with the Law on Health Insurance; 2) land tax; 3) lease tax on state-owned land and bodies of water belonging to the state water stock, leased for commercial of amateur fishing purposes; 4) real estate tax of enterprises and organisations; 5) stamp duty, established in the Law On Stamp Duty; 6) market place tax; 7) inheritance or gift property tax; 8) other tax revenue established by laws. ARTICLE 4. Transfer of Tax Revenue to Municipal Budgets The State Tax Inspectorate shall transfer directly to the municipal budgets the share, of natural persons’ taxes in percentages, confirmed by law; land tax; lease tax on state-owned land and water bodies belonging to the state water stock, leased for commercial or amateur fishing purposes; real estate tax of enterprises and organisations; inheritance or gift tax; market place tax; other tax revenue established by laws, and also, the stamp tax in accordance with the Law On Stamp Duty. Article 5. The Composition of Non Tax-Derived Revenue of Municipal Budgets The following non tax-derived revenue shall be assigned to municipal budgets: 1) revenue from municipality owned assets (property); 2) fines and revenue resulting from confiscations according to the procedure established by law; 3) local tax collection according to the Law on Local Levies; 4) municipal budgetary revenue obtained for the services rendered; 5) other revenue;

  1. a)revenue on the balances of municipal funds in current accounts;
  2. b)revenue income derived from the lease or sale, according to established procedure, of plots of state-owned land, not designated for agricultural use;
  3. c)other, non tax-derived income, established by law. ARTICLE 6. Payment of Non Tax-Derived Revenue into the Municipal Budgets The State Tax Inspectorate shall according to established procedure transfer directly into the municipal budget such non tax-derived revenues, which are paid by natural and legal persons, in accordance with the laws. Other non tax-derived revenues shall be paid directly into the municipal budgets. ARTICLE 7. Subsidies to Municipal Budgets Municipal budgets shall receive subsidies, the procedure of calculation, confirmation and transfer whereof, shall be established by this Law. ARTICLE 8. Loans 1. Municipal budgets may avail themselves of the following loans: 1) a loan from the state budget, in instances when the municipal budgets are temporarily in need of funds; 2) other loans. 2. Municipalities shall have the right to obtain loans according to the procedure and conditions established by the Government. THIRD SECTION THE PROCEDURE OF ESTABLISHMENT OF SUBSIDIES ALLOCATED TO MUNICIPAL BUDGETS ARTICLE 9. Establishment of the Amount of General Subsidy of the State Budget The Ministry of Finance shall calculate the amount of the general subsidy (D), assigned to municipal budgets, and shall estimate the amount according to the D = A -B - C, formula, where: 1) A - shall constitute the amount of expenditures expected for the planned budget years of all municipalities. The planned budgetary expenditures of all municipalities shall be established as part of the common state and municipal budgetary expenditures in percentages; 2) B - shall constitute the expected amount of tax and non tax-derived budgetary revenue of all the municipalities for the planned budget years. The amount of the non tax-derived revenue is established as a fixed part of tax revenue by percentages; 3) C - shall encompass the special purpose subsidies from the state budget for the planned budget year. The following special purpose subsidies shall be allocated to municipal budgets:
  4. a)allocations, intended as compensations for residential houses, the parts thereof and flats for former owners, bought out by the state;
  5. b)allocations of capital investments, planned within the State Investment Programme;
  6. c)- allocations for the construction or purchase of residential houses for political prisoners and deportees returning to Lithuania;
  7. d)allocations for the construction or purchase of residential houses according to the Law on Provision of Housing for the Population;
  8. e)other special purpose funds designated from the state budget.. ARTICLE 10. Distribution of General Subsidy (D) from the State Budget General subsidy from the State Budget shall be allocated in 3 parts: 1. to form as a reserve for contingencies during the planned budget year, (D1); 2. to level municipal budgetary revenue (D2); 3) to level the differences within the municipal expenditure system, which are determined by objective factors independent of municipal activities (D3). ARTICLE 11. The Establishment of the General Share of Subsidy to Make up a Reserve for Contingencies and to Allocate to Municipalities 1. The size of the share of subsidy to be made up for contingencies shall be established as a general share of subsidy from the state budget percentage wise. 2. The share of the general subsidy from the State Budget, for making up the contingency reserve (D1) allocated to those municipalities, whose obtained tax revenues are less than had been estimated in tax revenues for the budget year. 3. The share of this subsidy allocated to the municipality shall be calculated according to the formula D1i = D1 (xi - xif) / å (xi -- xif ), where: 1) D1 shall represent the share of the general subsidy from the State Budget for making up the contingency reserve; 2) Xi shall represent the projected tax revenue of i - municipality; 3) Xif shall represent actually received tax revenue of i - municipality; Actually received tax revenue (Xif) shall be increased by countable payments which have not been received as a result of tax reliefs granted by decisions of the municipal council. ARTICLE 12. The Allocation of the General Share of Subsidy from the Budget for Levelling of Municipal Tax Revenues 1. Those municipalities shall be supported by the general subsidy share from the state budget to level municipality revenues (D2), whose estimated tax revenues per capita of municipality population shall be less than those estimated average tax revenues of the per capita of the population of all municipalities, adjusted by the stipulated percentage. The municipality shall receive an equal percentage part of the difference stipulated for all the municipalities, arising between the estimated per capita average tax revenues, of all municipalities, adjusted by the stipulated per capita percentage and estimated per capita tax revenue of municipality . 2. The general revenue share allocated to a municipality from the State Budget, to level tax revenues may be estimated according to the formula D2i = Gi H (K`x - xi), where: 1) D2i shall represent the general subsidy share allocated to the municipality from the state budget to level tax revenues, in percentages; 2) Gi shall represent the i - municipality’s population number; 3) `x shall represent the estimated average per capita of the population tax revenue of all municipalities; 4) Xi shall represent the per capita of the population tax revenue of i - municipality; 5) K shall represent the coefficient, which shall determine the number of the municipalities which are receiving subsidies; 6) H shall represent the levelling coefficient, which shall determine the share of subsidy received by each municipality. ARTICLE 13. Establishment of the Amount of the Funds, Allocated to Levelling of Differences in the Structure of Municipality Expeditures 1. The funds (D4), shall be allocated for levelling of differences in the structure of municipality expensditures, which are brought about by objective factors, composed of: 1) (D3), the part of the general subsidy part from the state budget, of the levelling of differences in the municipality expenditure structure, shall be estimated according to the formula of D3 = D - D1 - D2 ; 2) the share of the estimated tax revenues (Pi) of those municipalities, whose estimated per capita tax revenues are greater than the estimated average per capita tax revenues, adjusted according to the stipulated percentage. The share of tax revenue (Pi) shall be estimated as equal to the difference established for all municipalities, arising between the projected tax revenues per one municipality population and the part projected for average tax revenues of all municipalities, per one population member, adjusted in accordance with the established percentage, in percentages according to the formula Pi = Gi h(xi - k`x ), where:
  9. a)Gi - i - municipality’s population number; b)`x expected average tax revenues of all municipalities per one population member;
  10. c)Xi - expected tax revenues per one population member of i-municipality;
  11. d)K - coefficient, on which depends the number of municipalities whose tax revenue is adjusted;
  12. e)h - levelling coefficient, on which depends the part of tax revenues adjusted for each municipality. 2. The State Tax Inspectorate transfers the tax revenue share being adjusted (Pi), calculated in percentages, as tax revenue from natural persons in individual municipalities, to the state treasury account. ARTICLE 14. The Apportionment of the Funds Allocated to Level the Differences in Municipality Expenditure Structure 1.The funds for levelling the differences in the structure of municipality expenditures (D4) allocated to municipalities, with consideration of these demographic, -social and other indicators, calculated per 1000 municipality population, and differences in individual municipalities: 1) number of children up to the age of 18 (r1); 2) number of handicapped people (r2) 3) number of pension age population (r3); 4) area of municipality territory (r4). 2. The funds allocated to the municipality shall be calculated according to the formula D4i = D4Ei, where Ei is the structural index of i - municipality Ei = å Mr (ri -miinri)/ å (ri - minri), where: 1) ri - is the meaning of i-municipality’s r-demographic or other index; 2) Mr - is the coefficient, indicating r-demographic, social or other index importance for the general change of all budgetary expenditures of all municipalities. FOURTH SECTION CO-ORDINATION AND CONFIRMATION OF INDICATORS ARTICLE 15. Confirmation of the Indicators Deciding the Municipal Budgetary Size and Levelling Upon the proposal of the Government, the Seimas taking into account the negotiation protocol of the Ministries of Finance and Public Administration Reform and Local Government and Municipal Affairs and the Association of the Municipalities of Lithuania shall annually confirm these indicators no later than by October first for a three-year-term, without altering those confirmed in the previous year: 1) the expected budgetary expenditures of all municipalities, by percentages as part of the general expenditures of the state and municipal budgets; 2) coefficient K, which determines the number of municipalities receiving a general share of the subsidy from the state budget to level tax revenues; 3) levelling coefficient H, which determines the part of general subsidy received from the state budget for levelling tax revenues of every municipality; 4) coefficient k, which determines the number of municipalities which have their tax revenues adjusted; 5) levelling coefficient h, which determines the part of adjusted tax revenues of every municipality; 6) coefficients Mr, denoting the importance of demographic, social and other indicators in the general change of budgetary expenditures of all municipalities; 7) the size of non tax-derived income, as a fixed tax revenue part in percentages. ARTICLE 16. Confirmation of the Annual Financial Indicators and Transfer of Subsidies and Funds 1. The Seimas shall confirm by the Law on the State and Municipal Budget for the corresponding year: 1) the tax revenues from natural persons part in percentages, allocated to the budget of every municipality; 2) the general part of the state budgetary subsidy allocated to every municipality for levelling of the tax revenue; 3) the general part of the state budgetary subsidy, allocated to every municipality for levelling the differences in the structure of municipal expenditures; 4) special purpose subsidies, allocated to municipalities. 2. The confirmed subsidy parts, indicated in part 1 of this Article, shall be transferred to the municipalities equivalently, on a monthly basis. 3.The funds actually received, indicated in part 2 of Article 13, shall be allocated to the municipalities on a monthly basis, according to the procedure indicated in Article 14. 4. At the end of three quarters of the budget year, the Government shall confirm, upon a joint recommendation of the Ministry of Public Administration, Reform and Local Government Affairs and the Municipal Association of Lithuania, the sums of the general state budgetary subsidy, intended for municipal budgets to cover unforeseen instances. 5. If the Seimas or Government adopt decisions during the budget year, which affect changes in municipality functions, and concurrently, their expenditures, appropriate inter accounting transactions will take place between the state budget and municipal budgets. FIFTH SECTION FINAL PROVISIONS ARTICLE 1. Proposals to the Government The Government shall: 1) by October 1, 1997 prepare the procedure of municipal use of bank credits and of taking out and granting of loans; 2) by December 1, 1997, shall prepare new regulations of State Budget and municipal budget formation and implementation. ARTICLE 18. Invalid Legal Act With the coming into effect of this Law, the Republic of Lithuania Law “On the Establishment of Provisional Methodology of Municipal Budgetary Normatives and Subsidies,” shall be no longer valid. I promulgate this Law passed by the Seimas of the Republic of Lithuania PRESIDENT OF THE REPUBLIC ALGIRDAS BRAZAUSKAS

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