Lt

On the rates of the stamp tax

Case No. 13/95

 THE CONSTITUTIONAL COURT OF
THE REPUBLIC OF LITHUANIA

R U L I N G

On the compliance of Items 5, 6, 7, 8, 16, 17, 19, 27.4–27.9, 29, 34, 36 of the stamp tax rates confirmed by the Resolution of the Government of the Republic of Lithuania (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 with the Constitution of the Republic of Lithuania, Article 6 of the Republic of Lithuania’s Law on the Stamp Tax, as well as Article 6 of the Republic of Lithuania’s Law on Competition.

 15 March 1996, Vilnius

The Constitutional Court of the Republic of Lithuania, composed of the justices of the Constitutional Court: Algirdas Gailiūnas, Kęstutis Lapinskas, Zigmas Levickis, Vladas Pavilonis, Pranas Vytautas Rasimavičius, Stasys Stačiokas, Teodora Staugaitienė, Stasys Šedbaras, and Juozas Žilys

The court reporter—Daiva Pitrėnaitė

Vidmantas Žiemelis, a member of the Seimas, and Stasys Juocevičius, a lawyer, both acting as the representatives of a group of members of the Seimas of the Republic of Lithuania, the petitioner,

Leonora Žukienė, Head of Legal Division of the State Tax Inspectorate under the Ministry of Finance, acting as representative of the Government of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, pursuant to Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on Constitutional Court of the Republic of Lithuania, in its public hearing, on 7 March 1996, considered case No. 13/95 subsequent to the petition submitted to the Court by a group of the Seimas of the Republic of Lithuania members, requesting an investigation into whether Items 5, 6, 7, 8, 16, 17, 19, 27.4–27.9, 29, 34, 36 of the stamp tax rates confirmed by the Resolution of the Government of the Republic of Lithuania (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 are in compliance with the Constitution of the Republic of Lithuania, Article 6 of the Republic of Lithuania’s Law on the Stamp Tax, as well as Article 6 of the Republic of Lithuania’s Law on Competition.

The Constitutional Court

has established:

I

The Seimas on 23 June 1994 passed the Law on the Stamp Tax (Official Gazette Valstybės žinios, 1994, Nos. 51-950, 89-1712; 1995, No. 47-1135; 1996, No. 18-462) Paragraph 2 of Article 3 whereof stipulates “the rates of the stamp tax save for the cases under investigation in courts or copies of granted documents shall be established by the Government of the Republic of Lithuania”.

The rates of the stamp tax were confirmed by the Government by its Resolution (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 with subsequent amendments and supplements.

II

In the opinion of the petitioner, the rates established in Items 5, 6, 7, 8, 16, 17, 19, 27.4–27.9, 29, 34, 36 by the Government Resolution (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 are groundlessly high and violate the provisions of Article 6 of the Law on the Stamp Tax, as the stamp tax, according to this Article, shall be included into the budget, and only such office shall be maintained by this tax which performs actions and grants documents bearing legal power for which the aforesaid tax is collected.

In the opinion of the petitioner, the Government by constantly increasing the stamp tax transformed it into the means of illegal replenishing the budget and thereby in fact took the competence of the Seimas which is established in Item 15 of Article 67 of the Constitution (“establish State taxes and other obligatory payments”).

Besides, as the petitioner alleges, the Government by groundlessly increasing the rates of the stamp tax limits freedom of individual economic activity and initiative (Paragraph 1 of Article 46 of the Constitution), as well as people’s opportunity to freely choose business (Paragraph 1 of Article 48 of the Constitution).

These actions of the Government create conditions for monopolising the market because petty and average businessmen are financially incapable of paying high stamp taxes and, therefore, they give up the most profitable markets to large companies and monopolies (thus, Paragraphs 3, 4, and 5 of Article 46 of the Constitution are violated).

The petitioner also contends that the stamp tax rates which were established by the Government limit competition as they impede creating new economic entities, as well as changing the manner of their activity (Article 6 of the Law on Competition).

On the grounds of the arguments set forth, the petitioner requests that the Constitutional Court recognise that Items 5, 6, 7, 8, 16, 17, 19, 27.4–27.9, 29, 34, 36 of the stamp tax rates confirmed by the Government Resolution (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 contradict Article 46, Paragraph 1 of Article 48, Item 15 of Article 67 of the Constitution, Article 6 of the Law on the Stamp Tax, and Article 6 of the Law on Competition.

III

The representative of the party concerned has explained that the request of the petitioner is groundless and that the impugned items of the stamp tax rates confirmed by government resolution No. 1123 of 11 November 1994 are in compliance with the Constitution, as well as with the Law on the Stamp Tax and the Law on Competition, and has presented the following counter-arguments. In her opinion, the petitioner inaccurately interprets Article 6 of the Law on the Stamp Tax, i.e., that only such office is maintained by this tax which performs the actions and grants the documents bearing legal power for which the aforesaid tax is collected.

Article 6 of the Law on the Stamp Tax provides that the stamp tax shall be included into the budget which maintains the establishments performing actions and granting documents which bear legal power and for both of which the aforesaid tax is collected, although this, in the opinion of the representative of the party concerned, does not mean that this tax is allocated only to maintain the establishment that collects the stamp tax. The stamp tax, other taxes established by means of laws of the Republic of Lithuania, and other payments into the budget constitute revenues of the budgets of the Government and municipalities from which all budgetary establishments are maintained.

The representative of the party concerned argues that the Government by establishing the rates of the stamp tax did not take the competence of the Seimas and did not excel its jurisdiction as do to so it is authorised by law, therefore, it and no one other decides on what criteria the procedure of licensing is established.

Regarding the allegation of the petitioner that the Government by groundlessly increasing the rates of the stamp tax limits freedom of individual economic activity and initiative, as well as people’s opportunity to freely choose business, the representative of the party concerned has explained that the Government establishes the stamp tax on only such activity which is either not urged, or very profitable (trading with alcoholic beverages, organising lotteries, buying up metals and their processing, providing with international telecommunications services, import and export of oil-products, etc.). In her opinion, the remaining rates of the stamp tax are not high (5, 10, 25, 100, 150 Lt).

The representative of the party concerned also contends that the petitioner by alleging that the rates of the stamp tax limit competition and impede creating new economic entities, as well as changing the manner of their activity, should present the data which must be grounded with the corresponding economic analysis of commercial-economic activity of economic entities because without such data it is impossible to draw the conclusion whether the rates of the stamp tax established by the Government really impede creating new economic entities, as well as changing the manner of their activity.

In the court hearing the representatives of the petitioner, as well as those of the party concerned confirmed their statements.

The Constitutional Court

holds that:

Taxes are one of the oldest financial institutes which is used to generate revenues necessary for the state. Modern states make use of other payments as the state budget revenues as well.

Finance law defines taxes as obligatory and not individually compensated contributions of legal and natural persons established by state bodies into the state (municipal) budgets (in certain cases—into non-budget targeted funds) by indicating their amount and time limits of the payment.

The main object of taxes is the fiscal one, therefore, they are utilised as the revenue resource of the state budget which is assigned to meet the interests of society and state. In addition, socio-economic processes of the state are regulated by taxes.

After the reinstatement of the independent state of Lithuania, the reform of the system of taxes began to be implemented. As far back as 1990, the Law on Taxes on Profits of Legal Persons and the Provisional Law on Income Tax of Natural Persons were adopted. Later, in 1993, the Law on Value-Added Tax was passed, in 1994—the Law on Excise Taxes, as well as other laws regulating taxes were adopted.

On 28 June 1995, the Law on Tax Administering was passed (Official Gazette Valstybės žinios, 1995, No. 61-1525), Article 5 whereof gives the list of the taxes applied in the Republic of Lithuania. A unified tax system, which comprises all taxes and other payments and dues, has been created by tax laws, as well as by this law.

  1. On the compliance of Items 5, 6, 7, 8, 16, 17, 19, 27.4–27.9, 29, 34, 36 of the stamp tax rates confirmed by the Government Resolution (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 with Item 15 of Article 67 of the Constitution, as well as Article 6 of the Law on the Stamp Tax.

It is consolidated in Item 15 of Article 67 of the Constitution that the Seimas shall “establish State taxes and other obligatory payments”.

Article 2 of the Law on Tax Administering defines the notion of the tax as “monetary contribution for the state imposed upon the tax payer by the law on taxation, so that the state (municipality) may receive revenues to perform its functions”.

In order to assess whether the Government was competent to establish the rates of the stamp tax, one must make clear as to what is the position of the stamp tax in the system of the state revenues established by the state as a legal form of such revenues (payments), and how the contents of the stamp tax legal relations differ from other payments.

Paragraph 2 of Article 127 of the Constitution provides: “State Budget revenues shall be accrued from taxes, compulsory payments, dues, receipts from State property, and other income.” Thus, according to the Constitution, five legal forms of the state budget revenues may be singled out: regular taxes, other compulsory payments, dues, receipts from the state property, and other income. They are specified in particular laws. The stamp tax is not mentioned in the Constitution, therefore it belongs to one of the aforesaid legal forms of the state budget revenues. When comparing the legal forms of the budget revenues mentioned in Item 15 of Article 67 with the provisions of Article 127 of the Constitution, the conclusion should be drawn that not every legal form of the budget revenues has the same legal meaning and regulation. This means that the Constitution establishes an opportunity for the Seimas to variously regulate the state budget revenues while considering their legal forms.

According to Article 2 of the Law on Tax Administering, the law on taxation is “a law of the Republic of Lithuania which shall establish the tax, due, or other payment into the state (municipality) budget <...>”. The stamp tax was introduced with the adoption of the Law on the Stamp Tax on 23 June 1994, which entered into force on 1 January 1995. Until the adoption of the Law on the Stamp Tax, the said legal relations were regulated by the Government Resolution (No. 163) “On State Dues” of 12 March 1993.

The stamp tax, even though it is called a tax, in its essence is different from taxes (regular taxes) in their proper sense as its nature is that of a direct recompense. This tax is collected for actions performed by the state institutions, as well as for granted documents bearing legal power (Article 1 of the Law on the Stamp Tax). As a rule, such payments are paid only once. Meanwhile, the characteristic of taxes is that they are paid regularly during established time limits, and their nature is not that of direct recompense, i.e., after they had been paid to the state which accepted the said tax, the aforementioned institution has no obligation to perform any actions or render any particular service for the tax payer.

Recompense is characteristic of such a legal form of the state budget revenues as the due. Article 2 of the Law on Tax Administering defines the due as “a monetary contribution for a person for particular services rendered to him by the state institutions. Dues are a supplementary revenue resource to perform the state (municipality) functions”. Thus, the general contents of the legal relations of the state due are analogous to those of the stamp tax. They differ from each other in merely respectively being general and special legal notions.

In addition, the stamp tax, as well as the due, has a two-way character, as the subjects of the legal relations which occur after the stamp tax has been paid have the corresponding rights and obligations. According to Article 2 of the Law on the Stamp Tax, “the stamp tax shall be paid by legal and natural persons to the state institutions for performed actions, or granted documents bearing legal power”. Therefore, the state institution which collects the stamp tax and which is the compulsory subject of the said legal relations must perform corresponding actions in favour of the tax payer, e.g., to give a licence of taking up a particular activity, to render certain services, etc. On the other hand, the stamp tax payer is entitled, in his turn, to demand that the state institutions which collected the tax should perform corresponding actions, or render a particular service to the tax payer. Such a two-way link of subjects’ rights and obligations of the legal relations which occur after the said taxes have been paid entails them the nature of recompense.

Unlike regular taxes, which are always compulsory, the stamp tax, along with other taxes, may be either compulsory, or voluntary. The character of compulsory dues reveals itself in that when they are not paid in the cases provided for, they will be exacted by the procedure established by law. However, the essentials of regular taxes and those of compulsory dues, hence of the stamp tax as well, are different: taxes are paid providing there exists a permanent object subject to taxation, whereas there are two essentials of paying compulsory dues: the object subject to taxation and the actions performed, or services rendered by the competent institutions of the state to legal, as well as natural persons.

As a rule, most dues, as well as the stamp tax, are voluntary payments, i.e., a person, who desires to get some service or a particular action from a state establishment, consents to pay the stamp tax or any other due before the actions are performed, or documents bearing legal power are granted, and on such basis he becomes entitled to demand that the requested actions be performed, or that the documents he wants be granted.

Article 6 of the Law on the Stamp Tax establishes that “the stamp tax shall be included into the budget which maintains the establishments performing actions and granting documents which bear legal power and for both of which the aforesaid tax is collected”. It does not mean, however, that the said tax is allocated for only the establishment that collects it. The stamp tax is included into the budget which maintains all budgetary establishments, not to mention the establishment collecting the said tax.

Paragraph 1 of Article 127 of the Constitution provides: “The budgetary system of the Republic of Lithuania shall consist of the independent State Budget of the Republic of Lithuania and the independent municipal budgets.” According to Paragraph 1 of Article 11 of the Law on Budgeting, the state budget of the Republic of Lithuania shall be a centralised fund of financial resources. Paragraph 2 of the said article stipulates: “Financial resources accumulated in the State Budget of the Republic of Lithuania shall be used for financing national needs.” Article 13 of the said law enumerates particular national needs for which appropriations from the state budget shall be made. In particular, Item 7 of this Article prescribes that such needs are “the maintenance of institutions of state authority, governance and of law enforcement”. The financial resources for satisfying the needs of municipalities are reapportioned through the state budget as well.

In view of what has been stated above, it is impossible to assert that the Government by establishing the rates of the stamp tax took the competence of the Seimas because it was the Seimas, and not the Government, which introduced the stamp tax after passing the Law on the Stamp Tax. In Paragraph 1 of Article 3 of this law the object of taxation is established, i.e., it is indicated what the stamp tax is collected for, whereas in Paragraph 2 of the said Article it is established: “The rates of the stamp tax save for the cases under investigation in courts or copies of granted documents shall be established by the Government of the Republic of Lithuania”.

According to Item 2 of Article 94 of the Constitution, the Government shall “implement laws and resolutions of the Seimas concerning the implementation of laws”. That is also provided for in Item 2 of Article 21 of the Law on the Government.

The Government by establishing the rates of the stamp tax fulfilled the provision of the law. Thereby it did not violate the provision of Item 15 of Article 67 of the Constitution as it merely established the rates of the stamp tax, but did not establish new taxes, or other obligatory payments. Thus, the conclusion should be made that the impugned items of the stamp tax rates confirmed by government resolution No. 1123 of 11 November 1994 are in compliance with Item 15 of Article 67 of the Constitution, as well as with Article 6 of the Law on the Stamp Tax.

  1. On the compliance of Items 5, 6, 7, 8, 16, 17, 19, 27.4–27.9, 29, 34, 36 of the stamp tax rates confirmed by the Government Resolution (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 with Article 46 and Paragraph 1 of Article 48 of the Constitution, as well as Article 6 of the Law on Competition.

The petitioner in his request contends that the Government by establishing groundlessly high rates of the stamp tax limits freedom of individual economic activity and initiative, as well as people’s opportunity to freely choose business, and that these actions of the Government create conditions for monopolising the market and limiting competition.

  1. The provision of Paragraph 1 of Article 46 of the Constitution “Lithuania’s economy shall be based on the right to private ownership, freedom of individual economic activity, and initiative” is tightly connected with the human right established in Paragraph 1 of Article 48 of the Constitution to freely choose an occupation or business. Both of the said provisions are also linked to the principle established in the Constitution of the equality of persons before the law, the court, and other state institutions (Paragraph 1 of Article 29 of the Constitution), as well as with the provision of Paragraph 3 of Article 46 of the Constitution that the state shall regulate economic activity so that it serves the general welfare of the nation. All these constitutional provisions by conditioning each other constitute constitutional preconditions for passing laws which respond to the conditions of national economy, the diversity and change of economic and social life.

The Constitutional Court has already held that law may establish different legal regulation concerning certain categories of persons who are in different situations. This should also be applied to legal persons, and not only to natural persons as the former are, as a rule, corporations of natural persons (the Constitutional Court’s ruling of 28 February 1996; Official Gazette Valstybės žinios, 1996, No. 20-537). Thus, the human right to freely choose one or another type of the occupation or business may be regulated by varied manner. This right is first linked to manifold natural requirements, i.e., to skills and capacities of every person. These requirements may be diverse: the possession of corresponding training, moral and other qualities (e.g., physicians, teachers, judges, public prosecutors, etc.), acquiring a specific license (e.g., drivers), etc. The opportunity to freely choose business is also limited by natural requirements, e.g., the possession of the initial capital. In fact, a person with no necessary material condition would not make use of this right. Therefore, a person when choosing an occupation or business knows in advance that he is supposed to have an adequate training, or pay particular taxes, and, according to his skills or capacities, decides what to choose. It is most important that the opportunity of free choice for a person should not be limited directly, in a normative manner, i.e., the person may not be prohibited from choosing a particular occupation or business.

The rate of a tax or a due in particular does not limit the human right to freely choose an occupation or business. Assuming that one or another tax rate limits the human right to freely choose an occupation or business, the conclusion can be reached that taxes as such which are imposed on the entities of a particular branch of economy or business limit the said human right.

  1. It is established in Paragraph 4 of Article 46 of the Constitution: “The law shall prohibit monopolisation of production and the market, and shall protect freedom of fair competition.” In Article 2 of the Law on Competition the competition is defined as emulation during which economic entities, by acting independently in the market, limit one another’s opportunities to attain a dominant position in that market.

The statement of the petitioner that groundlessly high stamp tax rates limit competition as they impede creating new economic entities and, therefore, contradict Article 6 of the Law on Competition, is to be estimated as a general precondition, as this precondition is not grounded on the legal facts of application of particular rates for individual economic entities. Meanwhile, if different amounts for individual branches of economy of stamp tax rates were regarded as limiting competition, then, on the whole, it would mean denial of the possibility of regulating an economic activity in such a way that the conditions of national economy, the diversity and change of economic and social life were taken into account. The stamp tax rates established by the Government would limit competition if they were different for the same categories of persons (those of a branch of economy or business), i.e., if for certain economic entities they were of one kind, and for others they were different. Then some persons would be discriminated, while others would be granted privileges. Meanwhile, the Government has established equal stamp tax rates for all entities of the same type of economy or business.

The allegation of the petitioner that such actions of the Government create conditions for monopolising the market is to be estimated analogously. In itself, the establishment of stamp tax rates does not mean that conditions are created to monopolise the market, i.e., to introduce monopoly. The monopoly is understood as an exclusive right of a person, or a group of persons, or a state to operate in a certain field. Meanwhile, the Government by establishing different stamp tax rates for individual branches of economy or business has not granted any exclusive right for any economic entity or group of persons to operate in an individual field of economy or business, and thereby did not limit freedom of economic activity and initiative.

Taking into account the arguments set forth, the conclusion should be made that the impugned items of the stamp tax rates confirmed by government resolution No. 1123 of 11 November 1994 are in compliance with Article 46 and Paragraph 1 of Article 48 of the Constitution, as well as Article 6 of the Law on Competition.

Conforming to Article 102 of the Constitution of the Republic of Lithuania and Articles 53, 54, 55 and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

To recognise that Items 5, 6, 7, 8, 16, 17, 19, 27.4–27.9, 29, 34, 36 of the stamp tax rates confirmed by the Resolution of the Government of the Republic of Lithuania (No. 1123) “On the Confirmation of the Rates of the Stamp Tax, as Well as the Procedure of Payments and Returning of the Stamp Tax” of 11 November 1994 are in compliance with the Constitution of the Republic of Lithuania, Article 6 of the Republic of Lithuania’s Law on the Stamp Tax, as well as Article 6 of the Republic of Lithuania’s Law on Competition.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:

 Algirdas Gailiūnas                           Kęstutis Lapinskas                           Zigmas Levickis

 Vladas Pavilonis                              Pranas Vytautas Rasimavičius         Stasys Stačiokas

 Teodora Staugaitienė                       Stasys Šedbaras                               Juozas Žilys