AS THE dust settled yesterday after the ‘battle’ for the tax reform, the losers began to appear. Hit worst by the new package are wage-earners who do not pay income tax or belong to any social group that receives state benefits.
The tax-free ceiling has been increased to £9,000 but at the same time VAT went up by three per cent to 13 per cent with simultaneous hikes in fuel and other consumer taxes.
The government has also scrapped the three per cent defence levy though according to economist Costas Apostolides that would not make much of a difference to the class that was under the previous tax-free ceiling of £6,000.
Apostolides told the Cyprus Mail that the main problem with the tax reform had been the people who would not benefit by the lifting of the tax-free ceiling and there had been thoughts to give them a cash payment calculated according to the VAT.
The idea was apparently abandoned.
“The biggest weakness (of the tax reform) is that it is regressive because this class has no benefits,” Apostolides said.
There are members of this group who get state benefits depending on whether they have children, are pensioners or receive other public benefits. But what about low wage-earners who do not have children, are not pensioners and are not eligible for any other assistance?
According to the Head of the Cyprus College Socio-Economic and Political Research department, Charalambos Papageorgiou, wage-earners who receive a cost of living allowance (COLA) will have their VAT reimbursed after a few months.
Papageorgiou said that the consumer price index was expected to rise by around 1.2 per cent – around 0.4 per cent for every per cent rise in VAT – and would affect those without COLA coverage more.
Wage-earners would also benefit from the abolition of the defence levy and from then on “you have the increases in consumer taxes, which depends on the type of tax and if it is something you use”, Papageorgiou said.
Papageorgiou said the overall tax package was not satisfactory, stressing that he had not yet studied the final version.
He said that it initially seemed to be beneficial for the rich – “the richer the better” – but “the government said this would be corrected by compensatory measures”.
“But I don’t think it’s right to make a tax system which benefits the rich and then come and correct it.
“The system should have been okay in order to avoid corrections,” Papageorgiou said.
On corporate tax, which was now the same for offshore and local companies, Apostolides said it would have a very positive effect on the economy in general because it would eventually allow offshore companies to become onshore.
“Ten per cent is quite attractive,” he said.
But that was not the way companies viewed the matter especially regarding a provision obliging them to contribute two per cent on their employees’ wages to the Social Cohesion Fund, which would be used to subsidise pensioners.
The Chamber of Commerce and Industry (KEVE) said the tax reform was unequal and could only hurt businesses and cut their competitiveness.
KEVE charged that its suggestions had been totally ignored and warned that it could appeal to the Supreme Court if the provision, as the chamber believes, proves to be unconstitutional.
“The new tax on companies will not allow them to compete in the new financial environment while at the same time, the negative treatment of businesses would have harmful effects on the development of the economy,” KEVE said.
The tax reform failed to bring the necessary change to the country’s tax system and instead increased overall taxation of businesses putting them in a worse position compared to their competitors.
KEVE argued that apart from the direct taxation on the operational costs, other related taxes, like the increase in VAT and fuel, tax on vans, etc, had to be taken under consideration as well.
According to Papageorgiou however, companies were better off than those abroad.
“The average corporate tax in the EU is around 30 per cent and Europe is planning to established a unified corporate tax of 30 per cent in the future,” Papageorgiou said.
He added: “We had a decrease from 25 per cent to 10; it means we are better off compared to abroad.”
The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.
