Cyprus Achieves VAT Victory

by Lorys Charalambous, Tax-News.com, Cyprus

26 March 2002

The Cypriot Government announced last week that the European Union has agreed to a five year derogation allowing a zero VAT rate on basic goods such as food and medicines in the jurisdiction.

The announcement has been welcomed by tax experts and the country's media, which has praised the authorities for standing their ground on the issue during EU accession talks, rather than simply bending to EU pressure.

The Cypriot Government intends to implement a raft of tax reforms in anticipation of becoming a member of the European Union. However, transitional agreements on certain contentious areas such as the taxation of existing international businesses in Cyprus, and the extension of VAT to basic necessities have been sought, and in this case, won.

In a report released on Friday, the Cyprus Weekly applauded Finance Minister Takis Klerides on his victory, observing that: 'Not all EU laws and regulations are superior to local systems of doing things. The case of VAT on basic goods is a fundamental case, because such goods affect the poorest segments disproportionately.'

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