Cyprus Government Holds Up Tax Reform Bill With Indecision Over Company Tax Reforms

by Lorys Charalambous, Tax-News.com, Cyprus

25 September 2001

The House Finance Committee in Cyprus has advised the government that its delay in tabling tax reform plans could put back voting on the proposals so that they coincide with the presidential election campaign at the start of next year.

Finance Minister Takis Klerides explained to local reporters that the tabling of the tax reform package is slow in coming because decisions had not yet been made with regard to changing the existing corporate tax rates. The tax changes must be agreed on by the end of this year as stipulated by the European Union as part of its demands during Cyprus's quest for accession.

The government had not yet discussed how to deal with the EU demand that international business tax breaks be abolished and it is keen to come to a compromise that will please both offshore and onshore companies as well as appeasing the EU. Currently, offshore companies in Cyprus enjoy a 4.25% corporate tax rate, compared to 20 - 25% for local businesses. The decision process is not helped by the wavering taking place among some EU member states over whether Cyprus should be admitted regardless of the Turkish problem. Every time that an EU member state speaks out against admitting a divided Cyprus, those Cypriots who are in doubt about EU entry (and there are many of them) gain renewed enthusiasm for impeding the government's efforts to find a compromise.

Klerides said that the government has plans to confer with Parliament before submitting its tax reform proposal to the EU before the end of the year, which would then be voted on by the House but Committee Chairman, Marcos Kyprianou (DIKO) warned: 'We don't want alternative scenarios and ideas thrown on the table. We need the ministry to submit a complete proposal to us so that we can position ourselves on it.'

Stavros Evagorou (AKEL) warned that if the government did not table the tax reform package within the next two months the deputies would be forced to vote on it during the presidential election campaign which could result in influencing their mood and perspective on the tax cuts thus forcing the deputies to make some difficult voting decisions.

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