Cyprus VAT Increase Comes Into Effect, Other Tax Reform Measures Delayed

by Lorys Charalambous, Tax-News.com, Cyprus

02 July 2002

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

Although all sides had announced that the tax package - which includes the introduction of a unified corporate tax rate, a reduction in income tax levels, and the gradual phasing out of the defence levy, as well as the VAT increase - was almost agreed, opposition MPs on Thursday requested several amendments which are likely to affect the intended 'revenue neutral' status of the tax reform package.

Changes requested included more generous benefits for large families, a 5% surcharge on corporate tax for profits of above £1 million, higher pension plans, and tax exemptions for the self-employed, according to the Cyprus Weekly on Friday.

It was on the understanding that the various tax reform measures would be approved by the end of June that the European Union allowed Cyprus to provisionally close its taxation and competition accession chapters early last month.

However, in order to allow lawmakers to assess the possible cost of the proposed changes to the government, and the potential effect on the jurisdiction's fiscal deficit, it was agreed last week that the House of Representatives should be allowed a few days to study the amended tax package before being obliged to vote on it.

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