Cyprus Unveils Fiscal Stability Plan

by Lorys Charalambous, Tax-News.com, Cyprus

12 April 2010

The Cypriot government has announced a fiscal stability plan that will put government finances back on a sustainable path, and gear the economy towards recovery.

The plan will increase the value-added tax rate on previously zero-rated goods, namely pharmaceuticals and certain food items, to 5% by 2011. The standard rate of VAT in Cyprus is 15%.

The fiscal plan will also step up the fight against tax evasion, and reduce government spending through efficiency savings and public sector wage cuts. As part of the plan, state payroll and the salaries of state officials will be cut by 10%.

Explaining the government’s rationale, Cyprus’s Finance Minister, Charilaos Stavrakis said that the government’s preference was to curtail spending rather than increase tax.

Under the plan, the Cypriot deficit will be brought within the EU guideline of 3% of gross domestic product (GDP) by 2013, from 6% currently. Growth of 0.5% is expected in Cyprus during 2010, ramping up to 3% of GDP in 2013.

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