THE IMPACT OF INTERNATIONAL TRADE TAX EXEMPTIONS ON BUSINESS DEVELOPMENT IN THE CASE OF LITHUANIA

Abstract

International trade policy, including tariffs and agreements, has a significant impact on the development of the country's economy, as it is closely related to investment flows and strengthening competitiveness. Tax policy in this context becomes one of the most important instruments determining the attractiveness of the state to foreign capital. The standard value added tax (VAT) rate of 21proc.  applied in Lithuania and preferential rates such as 5proc. , 9proc.  for specific goods and services and 0proc.  for exports create the conditions for maintaining a competitive advantage in the international market. And the VAT deferral mechanism and the incentives provided by the free economic zone (FEZ) contribute to the creation of a favorable investment environment and promote international trade. Data from the Bank of Lithuania show that in 2022-2024. the volume of foreign direct investment (FDI) grew, which allows us to assume that the applied fiscal measures are effective. However, the VAT gap analysis reveals another problem: although it has decreased from 24proc.  to 14.6proc. , Lithuania still lags behind the EU average and other Baltic countries, which indicates structural challenges in tax administration, which may have a negative impact on the development of international trade and international business.