Lithuania's tax authority flags manufacturing as high-risk due to VAT issues

Lithuania's State Tax Inspectorate (VMI) has flagged the manufacturing sector as carrying a higher risk, primarily due to issues related to value-added tax (VAT). The inspectorate's findings indicate that control actions within this sector have been effective in identifying and recovering unpaid taxes. In 2025, 346 control procedures in manufacturing led to the assessment of an additional 2.66 million euros in taxes. This year, the first half saw 198 control procedures yield 1.88 million euros in additional tax liabilities. Common violations detected during inspections include undeclared but accounted-for VAT, unjustified VAT deductions, incorrect application of the 0% VAT rate, and improper adjustments to VAT deductions. Issues related to the taxation of benefits in kind also occur. The VMI emphasizes that its control strategy is increasingly driven by data analysis and risk assessment, rather than simply increasing the number of inspections. The inspectorate employs an intelligent control process management system (i.KON) to analyze information from various sources, apply risk rules, automate the selection of high-risk cases, and respond promptly to discrepancies. This approach aims to identify the most significant tax risks and direct control efforts accordingly. The VMI also reported that in 2025, over 4,300 taxpayers were informed about potential errors or discrepancies in their VAT declarations, with more than 80% voluntarily correcting them, resulting in 22 million euros recovered. Similar trends continue this year, with 3,500 taxpayers informed about errors during declaration checks, leading to 12.6 million euros recovered.

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The violations most often identified during inspections are related to accounted for but undeclared VAT, unjustified VAT deduction, unjustified application of the 0% VAT rate, and improper adjustment of VAT deduction. Violations related to the taxation of benefits in kind also occur.