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On the Law on Excise

Case No. 4/98

 

 

THE CONSTITUTIONAL COURT OF

THE REPUBLIC OF LITHUANIA

 

R U L I N G

On the compliance of Item 2 of Paragraph 1 and Paragraph 2 of Article 13 of the Republic of Lithuania’s Law on Excise with the Constitution of the Republic of Lithuania

Vilnius, 9 October 1998

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Egidijus Jarašiūnas, Kęstutis Lapinskas, Zigmas Levickis, Augustinas Normantas, Vladas Pavilonis, Jonas Prapiestis, Pranas Vytautas Rasimavičius, Teodora Staugaitienė, and Juozas Žilys

The court reporter—Daiva Pitrėnaitė

Seimas member Kęstutis Trapikas, acting as the representative of a group of members of the Seimas of the Republic of Lithuania, the petitioner, and the lawyer Raimondas Šukys who was authorised by the said Seimas member

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 the Constitutional Court of the Republic of Lithuania, on 24 September 1998, in its public hearing, considered case No. 4/98 subsequent to the petition submitted to the Constitutional Court by a group of Seimas members, the petitioner, requesting an investigation into whether Item 2 of Paragraph 1 and Paragraph 2 of Article 13 of the Republic of Lithuania’s Law on Excise were in conformity with Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution of the Republic of Lithuania.

The Constitutional Court

has established:

I

On 9 December 1997, the Seimas passed the Republic of Lithuania’s Law “On Amending the Law on Excise”. By Article 1 of the said law, the Law on Excise was amended and the said law was set forth in its new wording.

Article 13 of the Law on Excise which is entitled Concluding Provisions was set forth as follows:

1. The Government shall establish:

(1) the procedure for calculation and payment of excise taxes;

(2) the list of taxable goods according to the established description and coding system of goods, and the excise rates;

(3) the procedure for the categorisation of cars as luxurious cars.

2. The Government, on the basis of Article 3 hereof shall, by 1 January 1999, establish the list of goods subject to excise taxes and rates thereof. The list of goods subject to particular excise taxes beginning from 1999 and rates thereof shall be approved by the Seimas.”

In its petition, a group of Seimas members, the petitioner, requests an investigation into whether Item 2 of Paragraph 1 and Paragraph 2 of Article 13 of the Law on Excise are in conformity with the provisions Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

The request is grounded on the fact that, under the said provisions of the Constitution, the right to establish the rates of excise taxes belongs to the Seimas and establishing such rates is permitted only by law. Meanwhile, Paragraph 2 of Article 13 of the impugned law prescribes that until 1 January 1999 the goods subject to excise taxes and their rates shall be established by the Government. Thus, in violation of the Constitution, the right to establish the rates of excise taxes has been delegated to the Government.

II

The representative of the petitioner K. Trapikas presented the following additional reasoning and explanations in writing.

Paragraph 2 of Article 5 of the Law on Excise provides that the excise tax is an element of the price of goods and, thus, it is not stated in the invoices and payment documents. The law does not give a broader concept of the excise tax, nor does it elucidate the essence of this tax.

Item 2 of Paragraph 1 of Article 2 of the Republic of Lithuania’s Law on Tax Administration indicates that the excise tax is a type of tax. In this article the concept taxes covers both taxes and dues.

Excise taxes are one of the main revenue sources for the accomplishment of State (municipal) functions.

Under Article 3 of the Law on Excise, the object of the excise tax are the groups of goods made in Lithuania as well as import goods which are listed therein.

The list of the groups of goods has caused a situation that the portion of the excise tax in the national budget has been increasing constantly, and from 1994, i.e. from the adoption of the Law on Excise when this portion constituted 7 per cent of the national budget increased up to 14.1 per cent by 1997, while the 1998 Law on the Budget which was passed by the Seimas provides that excise taxes will contribute 18.3 per cent of the revenues of the national budget. One predicts to collect 24.4 per cent, i.e. a quarter of all state budget revenues, from excise taxes in 1998.

Item 14 of Article 67 of the Constitution provides: “The Seimas shall approve the State budget and supervise the implementation thereof.” Paragraph 1 of Article 131 of the Constitution prescribes: “The draft budget of the State shall be considered by the Seimas, and shall be approved by law by the beginning of the new budget year.”

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.” Under the law on the budget, the revenues and expenditure are approved by the Seimas in a monetary as well as percentage expression. Paragraph 3 of Article 127 of the Constitution points out the form a legal act by which taxes, other budgetary payments and dues are to be established: “Taxes, other budgetary payments, and dues shall be established by means of laws of the Republic of Lithuania.” The Government, taking account of the laws, budgetary payments, dues, and their size as established by law, as well as taking into consideration the results of previous year and the economic predictions, prepares and submits the draft budget to the Seimas for its deliberation and approval.

The establishment of taxes, other compulsory budgetary payments or dues and their size, i.e. rates, in other form than that of law, as well as delegation of the right to establish taxes and their rates to the Government, contradicts the provisions of Paragraph 3 of Article 127 and Item 15 of Article 64 of the Constitution. The Constitution does not provide that the Seimas is entitled to delegate the powers that belong to it to other institutions of authority and administration. This is prescribed by Paragraph 1 of Article 5 of the Constitution: “In Lithuania, the powers of the State shall be exercised by the Seimas, the President of the Republic and the Government, and the Judiciary” and by Paragraph 2 thereof: “The scope of powers shall be defined by the Constitution.” After the powers of the Seimas which are established by the Constitution have been delegated to the Government, the principles of the balance (distribution) of the competence of the legislative and executive powers are violated, and, in general, the designation, separation and limitation of the competence of the Seimas and the Government as established by the Constitution become meaningless.

In case the Government is granted the right to establish the size of the rates of excise taxes, then, at its discretion, without making amendments in the law on the budget, it can unlawfully change, i.e., in case of need, increase the portion of revenues from excise taxes in the State budget. One has virtually established an opportunity for the Government to evade, at its discretion, the norms of the law in case of need: what, under the Constitution, must be established by law only, it becomes possible to establish by government act. This allows mitigating the effects and concealing the causes of the failure to collect other taxes into the budget. The Government may evade the control over the maintenance of the budget which is accomplished by the Seimas, and remain not responsible politically for not implementing the law on the budget. In case there are more revenues in the budget, there appears an opportunity for the Government to dispose of the collected funds outside the procedure which is established by the law on the budget. The fact that the Government actively uses the opportunity to increase the rates of excise taxes is proved by a number of government resolutions by which the rates of excise taxes have systematically been increased.

The representative of the petitioner maintains that approval of goods subject to particular excise taxes and rates thereof is the competence of the Seimas. This is recognised by the Seimas itself which delegates this right to the Government only until 1 January 1999.

The representative of the petitioner, controverting the reasoning set down in the papers of the Minister of Finance and the representative of the party concerned, points out that the conclusion of the Constitutional Court on the right of the Government to establish the rates of taxes concerns dues but not taxes. The notion laws which is used in Article 127 of the Constitution may not be explained by expanding it, as Item 2 of Article 67 of the Constitution establishes that the Seimas shall enact laws. Neither the President of the Republic nor the Government is entitled to enact them.

III

The representative of the party concerned Leonora Žukienė presented the following arguments in writing.

In pursuance of Item 15 of Article 67 of the Constitution, the Seimas establishes State taxes and other obligatory payments. The Seimas confirmed excise taxes by the law of 12 April 1994 wherein the object of excise taxes, the taxable value, as well as other provisions related to the application thereof (the payment procedure, recovery, repayment, sanctions for not paying excise taxes etc.), were prescribed. In the law the Seimas established the main provisions for application of excise taxes.

Article 127 of the Constitution indicates that taxes, other budgetary payments, and dues shall be established by means of laws of the Republic of Lithuania. In this case the notion laws means not only a legal act passed by the Seimas. One has to comprehend it in a much wider sense.

The legal doctrine recognises that there exist several methods and rules of interpretation of law. One of them is the linguistic method, i.e. that of the science of language. This method is most widely applied. When one applies the linguistic method, in certain cases the notion laws may be understood as only a legal act passed by the Seimas, while in other cases it is used in a more abstract sense and means not only a legal act passed by the Seimas but also another legal act, for instance, a government resolution. Thus, government resolutions may also establish certain rules, for example:

(1) the Seimas approved the Republic of Lithuania’s Law on the Stamp Tax by the law of 23 June 1994. Article 9 thereof indicated that the Government shall, by 1 November 1994, establish the rates of the stamp tax as well as the procedure for payment and repayment thereof;

(2) the Seimas established by Article 4 of the Republic of Lithuania’s Law on the Road Fund of 18 November 1997 that “the Government of the Republic of Lithuania shall establish the procedure for payment of the tax and control thereof, as well as the rates without violating the marginal rates provided for in Annex 2 of this Law”.

The representative of the party concerned emphasised that the Parliament delegates certain rights not only to the Government but also to municipalities. For instance, Article 29 of the Republic of Lithuania Provisional Law on Income Tax of Natural Persons provides that “the municipal councils shall have the right either to reduce the income tax or to exempt from income tax certain private (personal) enterprises as well as partnerships by compensating the amount from the municipal budget”.

By means of the Law “On Amending the Law on Excise”, which has been impugned at the Constitutional Court, the Seimas also obligated the Government to establish the list of goods subject to excise taxes and rates thereof by 1 January 1999.

On the grounds of these examples, the representative of the party concerned concluded that, by passing laws, in certain cases the Seimas delegates certain rights to the Government or municipalities.

Item 2 of Article 94 of the Constitution stipulates that “the Government of the Republic of Lithuania shall implement laws and resolutions of the Seimas concerning the implementation of laws, as well as the decrees of the President of the Republic”. The conclusion should be drawn from this that the Government, in implementing the rights delegated to it by the Seimas, accomplishes the provisions of the Constitution.

In view of the arguments set forth, the representative of the party concerned contends in her paper that the provisions of Item 2 of Paragraph 1 and Paragraph 2 of Article 13 of the Law on Excise are in compliance with those of Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution of the Republic of Lithuania.

IV

Finance Minister Algirdas Šemeta explained the following in writing.

The excise tax has been established as a tax by the Law on Excise. The Government, by establishing the list of goods subject to excise taxes and rates thereof, did not take over the functions of the Seimas as it was the Seimas and not the Government that levied excise taxes, after it had passed the Law on Excise. Article 3 thereof determines the object of the tax, i.e. it indicates the goods which are subject to the excise tax; Paragraph 2 of Article 13 provides that the Government, on the basis of Article 3 of the said law shall, by 1 January 1999, establish the list of goods subject to excise taxes and rates thereof. The list of goods subject to particular excise taxes beginning from 1999 and rates thereof shall be approved by the Seimas. The impugned provision is in compliance with Paragraph 3 of Article 127 of the Constitution.

Under Item 2 of Article 94 of the Constitution, “the Government of the Republic of Lithuania shall implement laws and resolutions of the Seimas concerning the implementation of laws”. This is also provided for by Item 2 of Article 21 of the Law on the Government.

The Government, by establishing the list of goods subject to excise taxes and rates thereof, accomplished the requirement of the law and did not violate the provision of Item 15 of Article 67 of the Constitution as it did not levy any new taxes or payments.

It is pointed out in the paper that the analogous conclusion was drawn by the Constitutional Court in its ruling of 7 March 1996 on the compliance of government resolution No. 1123 of 11 November 1994 with the Constitution, only there one was dealing with the rates of the stamp tax.

V

In the court hearing the representatives of the petitioner virtually reiterated the arguments set forth in writing.

VI

In the Constitutional Court hearing the specialists Remigijus Šimašius, a lawyer at the Lithuanian Free Market Institute, and Rūta Vainienė, a senior expert on finance at the same Institute, spoke.

The Constitutional Court

holds that:

Taxes are part of the finance system of the State. They constitute the main part of the State budget. For instance, from 7 billion Lt of the revenues of the 1998 State budget, 6.5 billion Lt are planned to be collected from tax revenues. In the budget one accumulates the portion of the national income which is designated to implement the programmes of public education, culture, science, health care, social care and maintenance, as well as environmental protection, to develop the economy, to maintain the institutions of state authority and state administration as well as for the national defence. Socio-economic processes which take place in society are regulated, useful economic efforts are promoted, and the development priorities of the national economy are supported by means of taxes. Thus, taxes are one of the main conditions for the existence of the State.

One of the chief principles of paying taxes is that taxes are obligatory. Various sanctions are provided for evading or not fulfilling this obligation. On the other hand, in a state under the rule of law guarantees are established which protect taxpayers from groundless requirements of state institutions. As a rule, the main legal guarantees for the protection of the rights of taxpayers are these:

(1) the establishment in the Constitution that taxes may be levied only by law;

(2) protection of the violated rights including their protection in court.

1. A group of Seimas members, the petitioner, requests an investigation into whether Item 2 of Paragraph 1 and Paragraph 2 of Article 13 of the Law on Excise are in conformity with the provisions of Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

The request is grounded on the fact that under the said provisions of the Constitution, the right to establish the rates of excise taxes belongs to the Seimas and establishing such rates is permitted only by law. Meanwhile, Paragraph 2 of Article 13 of the impugned law prescribes that until 1 January 1999, the goods subject to excise taxation and their rates shall be established by the Government. Thus, in violation of the Constitution, the right to establish the rates of excise taxes has been delegated to the Government.

The Constitutional Court notes that, in the course of the consideration of this request, the nature of the excise tax, and its peculiarities and meaning in the tax system must be assessed.

1.1. Item 15 of Article 67 of the Constitution provides: “The Seimas shall establish State taxes and other obligatory payments.” Paragraph 3 of Article 127 of the Constitution prescribes: “Taxes, other budgetary payments, and dues shall be established by means of laws of the Republic of Lithuania.” The Constitutional Court notes that these norms of the Constitution not only consolidate the prerogative of the Seimas to levy taxes but also establish as to in what legal form this regulation must be accomplished. Thus, taxes may be established only by law.

In legislation one follows the constitutional provisions regarding the legal form of tax establishment. For instance, Article 1 of the Law on Tax Administration of the Republic of Lithuania provides that this law shall establish the basic concepts and regulations which must be observed in implementing the tax laws of the Republic of Lithuania, furnish a list of taxes applied in the Republic of Lithuania, establish the rights and duties of the tax administrator, rights and duties of the taxpayer etc. The concept of the tax is formulated in Article 2 of the said law: “Tax denotes monetary obligation owed by the taxpayer to the state, established within the tax law in order that funds may be obtained to fulfil state (municipal) functions. It is established therein, too, that monetary obligation is accomplished under the procedure established by law.” Thus, by these norms the Seimas implemented its constitutional duty to regulate the tax relations by law.

Paragraph 1 of Article 5 of the Law on Tax Administration establishes the list of taxes of the Republic of Lithuania. By Item 2 of Paragraph 1 of the said article, among the 16 administered taxes, the excise tax has been established as well. The said tax is regulated in detail by the Law on Excise. This law provides for the subjects who pay the excise tax, situations when it is not to be applied, the object of excise taxes, i.e. particular types of goods, as well as taxable turnover, tax period, payment procedure, recovery, repayment, violation sanctions etc. Therefore, it is possible to assert that the essential rules for regulation of the said tax are established by the Law on Excise.

1.2. Excise taxes are characteristic of an individual nature, i.e. they are imposed on particular goods. It is such linkage which creates preconditions for regulating the consumption of particular goods. By this, one also acquires the funds that are necessary to meet the needs of society which are funded from the state budget. For example, under Article 3 of the Law on Excise, the following goods are the object of the excise tax:

(1) non-denatured ethyl alcohol;

(2) smoking tobacco and tobacco products;

(3) coffee, chocolate and food preparations containing cocoa;

(4) jewellery, gold and silverware, excluding artificial jewellery and coins;

(5) engine petroleum, kerosene, jet engine fuel, Diesel fuel;

(6) luxurious cars;

(7) electricity;

(8) publications of erotic or violent nature;

(9) lubricants of all types.

In case these goods are imported, they are also subject to the excise tax.

There are not many objects of the excise tax. Summarising their nature, it is possible to conclude that, among them, there are goods which are harmful to human health, or which should not be promoted due to other reasons, as well as luxurious goods or those yielding greater profit than usual.

One of the peculiarities of the excise tax is that it is an element of the price of goods. Thus, by the rate of the excise tax one regulates the price of particular goods. The excise tax is an indirect tax. It is paid by consumers of respective goods, i.e. its final payer is the purchaser. The excise tax is one of the sources of the state budget. As mentioned, the budget funds are utilised for the needs of the whole society and those of the State. One also regulates the import of goods by the excise tax, which allows protecting the interests of manufacturers of this country. By this the aim of the State which is established in Paragraphs 2 and 3 of Article 46 of the Constitution is sought: to support economic efforts and initiative which are useful to the community and to regulate economic activity so that it serves the general welfare of the nation.

1.3. Taxes, the excise tax among them, have their internal structure. The object of the tax and rate thereof are elements of this structure among its other elements. Assessing the impugned legal norms, one has to take into consideration the reciprocity of these elements.

The law defines that the object of the excise tax is certain goods. It is possible to assert that the object of the excise tax is the most important part of the internal structure of the said tax, which determines an exceptional nature of this tax. Therefore, the Law on Excise presents a final list of the objects of the excise tax. This list may not be interpreted in an expansive way.

In this case at law, the petitioner does not question the objects of the excise tax but he doubts whether the Seimas was entitled to delegate the right to the Government to establish the rates of excise taxes.

The rate (in the sense of its size) of a tax is a norm or a list of norms of established payments for certain goods or services. The rate of the excise tax, if compared to its object, is more dynamic and more likely to change. By changing the rate by legal acts, legal conditions are created to promptly react to market changes and juncture, as well as to establish State priorities in the area of economy. Thus, the rate of excise taxes is a flexible lever of economic regulation.

Assessing whether the Seimas has delegated the Government its prerogative to established the rates of excise taxes, one has to take account of the fact that, every year, when the law on approving the financial indicators of the state budget and those of the municipal budgets is passed, by means of a special clause a concrete amount of revenues which must be acquired from excise taxes is confirmed among other tax revenues. Thus, it is only the Seimas that establishes as to what amount the Government must collect from excise taxes. The amount defined in the law on the budget virtually determines certain limits on the rates of excise taxes. Due to this, in establishing the rates of excise taxes, the Government may not be independent absolutely.

Rates of taxes are an important element of taxes which in one or another way should be recorded in laws. As mentioned, the excise tax is sufficiently regulated in detail by law. In general, due to the peculiarities of this tax, the norm of the law regarding the right of the Government to particularise the rates of excise taxes for the objects of the excise tax as listed in the law is understood. Alongside, the Constitutional Court draws attention to the fact that the criteria for establishing excise rates could be defined more precisely by law. This would be an important guarantee for the payer of the excise tax. In addition, such intentions of the legislature might be perceived in the Law on Excise. For example, Paragraph 3 of Article 10 of the Law on Excise of 12 April 1994 establishes, along with the said commission for the Government, the commitment of the Seimas to establish the goods subject to particular excise taxes and rates thereof beginning from 1997. A similar commitment of the Seimas has been reiterated beginning from 1999 in Paragraph 2 of Article 13 of the newly worded Law on Excise of 9 December 1997.

In view of the arguments and reasoning set forth, it should be concluded that Item 2 of Paragraph 1 and Paragraph 2 of Article 13 of the Law on Excise are in compliance with Article 5, Item 15 of Article 67 and Paragraph 3 of Article 127 of the Constitution.

2. The petition virtually impugns the commission to the Government to establish a list of taxable goods according to the established description and coding system of goods and the excise rates which is prescribed by Item 2 of Paragraph 1 of Article 13 of the Law on Excise. One is to pay attention to the fact that in the hearing of the Constitutional Court the representatives of the petitioner recognised that the Seimas was virtually entitled to give such a commission to the Government.

It has been held in this ruling of the Constitutional Court that the excise tax as such has been established by the Seimas, and it did this by law. The object of the excise tax is established by Article 3 of the said law. Paragraph 2 of Article 13 of the Law on Excise merely commissions the Government, after it has established the list of taxable goods, to specify particular goods under the established description and coding system of goods and excise taxes. The codes of goods are presented under the combined range of goods which is conventional in Europe. This is more a technical rule allowing distinguishing and recognising an item of goods according to the general system of codes. By establishing a special list of goods, the Government merely observes the law. Such a duty is established to it by Item 2 of Article 94 of the Constitution which provides: the Government of the Republic of Lithuania shall “implement laws and resolutions of the Seimas concerning the implementation of laws, as well as the decrees of the President of the Republic”.

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 Item 2 of Paragraph 1 and Paragraph 2 of Article 13 of the Republic of Lithuania’s Law on Excise is in compliance with the Constitution of the Republic of Lithuania.

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:

Egidijus Jarašiūnas     Kęstutis Lapinskas      Zigmas Levickis

Augustinas Normantas     Vladas Pavilonis      Jonas Prapiestis

Pranas Vytautas Rasimavičius      Teodora Staugaitienė      Juozas Žilys