Cyprus Drafting Second Austerity Package

by Lorys Charalambous, Tax-News.com, Cyprus

25 August 2011

The Cypriot government has conceded to requests from the opposition to introduce a second round of austerity measures to calm international bond markets and stave off a downgrade.

To win approval for a package of measures announced earlier this month, the government has agreed to draft further measures to appease opposition parties that make up the majority of the country's parliament.

It is feared that a credit-rating downgrade could force the government to receive an EU-funded bailout to cover its financing needs in 2011 and 2012, estimated to be around EUR850m.

Meanwhile, Finance Minister Kikis Kazamias has called for a multi-party consensus on the first raft of measures to send a strong message to credit agencies and the bond market.

The first proposed austerity package includes: a 2% value-added tax rate increase to 17%; a hike to the withholding tax on savings interest derived by Cypriot residents from 10% to 15%, and the introduction of an additional top rate of personal income tax of 35% on income above EUR60,000 (USD87,000); a EUR350 fee on company formations; a property tax increase; and public sector cuts.

Secondary measures are expected to be outlined in parliament this week, to be adopted in September.

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