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Cyprus May Get Second Tax Amnesty

by Lorys Charalambous,, Cyprus

06 December 2007

An unlikely alliance between several Cyprus opposition parties may see the Government defeated over the possibility of a new tax amnesty. Leading opposition parties DISY and AKEL will combine with others to force through the measure, which would relieve unpaid pre-2002 arrears from interest and other penalties.

The President would then have 15 days to send the Bill back to Parliament. If it is then sent back unchanged to the President, he has to accept it. The attorney-general and the President have both said they are opposed to the Bill, which they claim is unconstitutional.

The proposed amnesty is a fairly shameless piece of electioneering in advance of Presidential elections in the spring. It appeals to the legions of people who lost money in the stock market collapse in 2002 and were hit with tax bills for previous gains which they were then unable (or unwilling) to pay.

A previous amnesty aimed at offshore accounts in 2005 brought in CYP119 million in revenues from a total of CYP2.5 billion in declarations. Those coming forward under the first phase of the amnesty scheme, which lasted until January 31 2005, faced a tax of 5% on their newly declared income. This tax rate increased to 6.5% in the second phase, which lasted until the end of February.

Despite falling revenues from tourism, Cyprus is expected to notch up growth of 3.9% in the current year and 3.8% in 2008, according to an economic analysis by PricewaterhouseCoopers.

Cyprus will join the euro zone on January 1, 2008 along with Malta. The PwC report argues that domestic demand is likely to continue to be the main driver of overall growth despite investment growth moderating somewhat in 2007. Consumer spending in particular is likely to perform well over the next two years owing to relatively low interest rates and favourable labour market conditions.

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