THE STATE’S controversial move to alter the collection period for VAT in respect of some business would added some €50 million to state coffers in 2009, Finance Minister Charilaos Stavrakis said yesterday.
Speaking at the House Finance Committee where he came under fire from deputies and businessmen, Stavrakis said: “It is ridiculous to say that businesses will be harmed or that they will not be able to pay their suppliers.”
He added: “This is a correct legal and social measure, which will inject our deficit and help development projects continue.”
The proposal involves collecting VAT every month instead of the current three months, which businesses say will leave them short of cash in the middle of a financial crisis. A second proposal involves withholding returns from companies who may owe money to the government in other areas such as social insurance.
When asked by disgruntled participants whether the move would help avoid EU supervision if the deficit exceeded the 3.0 per cent ceiling, Stavrakis said he could not say.
“The higher the deficit is, the more painful the cutbacks to the burden of the businessmen, the growth and the Cypriot employees will be”, he said.
“If the deficit reaches 3.9 per cent, more development projects will be cut from the budget. By the end of the year, however, the pessimistic forecasts for the deficit will be lowered due to better management of the state money and the restriction of expenses”, he added.
He appealed to the businessmen to contribute to the effort.
Around 77 companies would come under the new VAT collection rules. Stavrakis said they were those businesses that pay VAT of €2 million per year.
“We are not taking this step in order to increase the state’s liquidity, but to contribute to the public finances”, Stavrakis said. However he agreed that psychologically it was a negative move for the market.
MPs as well as representatives of the business world yesterday criticised the move. Committee Chairman DIKO’s Nicolas Papadopoulos refereed to the negative impact for the ailing construction sector, which was about to be ‘dealt another blow’ by the state.
“Even though at the end of the day, logistically and typically the numbers and figures will balance while a construction is being carried out, the builder is told on one hand not to collect the VAT from the state and on the other, to pay these amounts to his partners, suppliers, advisors and everyone else needed to carry out the construction,” Papadopoulos said.
This would lead to serious problems when it comes to the companies’ liquidity; especially during such financially critical times.
Attorney-general Petros Clerides explained that based on the law the VAT Commissioner has the power to alter collection dates for any number of companies, without this raising an issue of unequal treatment among taxpayers.
The head of the Cyprus Chamber of Commerce (KEVE), Manthos Mavrommatis, said the Chamber had received a large number of complaints from its members. The new measures, he added, would almost certainly lead to serious liquidity and investment problems, which would inevitably lead to an increase in unemployment.
The General Director of the Employers and Industrialists Federation OEV, Michalis Pilikos, agreed, even thoughhe acknowledged that the VAT Commissioner was well within her rights.
“The timing and the way in which it was decided to do this were wrong,” said Pilikos. “The government contrary to other decisions it had made to help businesses survive the financial crisis.”
