IMF Review Calls On Cyprus To Consider New Tax Measures

by Lorys Charalambous, Tax-News.com, Cyprus

03 November 2004

In its annual review of the Cypriot economy, the International Monetary Fund has warned that further tax measures may be necessary in order for the country to meet European Union fiscal rules and to smooth the path towards the adoption of the euro.

“It is worth emphasizing that some sacrifice is called for if Cyprus is to maintain macroeconomic stability and thus enjoy the full benefit of membership in the EU, including early adoption of the euro,” the multilateral body announced in a statement detailing the preliminary conclusions of the 2004 Article IV consultation with Cyprus.

The IMF mission recommended that the Cypriot government implement further measures to increase revenue flows and meet its fiscal targets, such as more aggressive pursuit of tax arrears, a widening of the tax base to cover sectors currently enjoying preferential tax treatment, and a revision and broadening of fees charged for government services.

If these measures fail to have the desired effect, the IMF called on the government to consider a limited increase in taxation.

Meanwhile, in the area of financial market liberalisation, the IMF welcomed the progress made by Cyprus in the strengthening of its financial sector legislation in line with EU directives.

However, the report also noted that further reforms are needed to protect the country’s financial system and strengthen its ability to cope with increased competition as a full member state of the EU.

In particular, the IMF urged caution regarding the relatively high level of non-performing loans and real estate lending practices.

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