Confusion Over Cyprus Tax Reforms Finally Ended

by Lorys Charalambous, Tax-News.com, Cyprus

09 July 2002

Confusion over the pre-EU accession package of tax reforms continued to reign in Cyprus last week, with widespread perplexity among taxpayers and businesses as to which measures had been voted through, which issues were still pending, and when tax relief measures and duty increases were scheduled to take effect.

An increase in the VAT rate to 13% and the scrapping of the defence levy on individuals came into effect last Monday, but a raft of other tax reform measures were delayed by last minute changes requested by the three opposition parties.

However, according the Cyprus Weekly news service, agreement was finally reached on Friday, and in addition to the VAT increase, the imposition of a uniform 10% corporate tax rate, and the scrapping of the defence levy, 'Key elements of the package are lower income tax,...child benefits (how much and how is pending following proposals to introduce income criteria) and more generous pensions and state aid'.

Despite criticism from several interest groups, economists have, in the main, welcomed the tax reform package as a timely stimulus to the jurisdiction's economy. However, there are fears that outside factors such as the rise in the value of the euro (to which the Cyprus Pound is pegged), fears over future terrorist attacks, and the US accounting scandals could hold the Cypriot economy down.

The Cyprus Weekly called on Friday for additional wide-ranging action, arguing that: 'Some imaginative economics are required to get the economy going forward'.

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