THE government plans to delay until mid-2008 the implementation of a raft of VAT increases that the EU wants imposed on January 1, while pushing the EU to allow a derogation until 2010.
Cyprus is committed to introducing 5 per cent VAT on food and pharmaceuticals, and 15 per cent VAT on land, all of which are currently zero-rated, as well as increasing VAT on restaurant bills from the current 8 to 15 per cent. However, the January 1 deadline coincides with the introduction of the euro, and the government argues an increase at such a time would lead to public confusion.
Speaking before the House Finance Committee, which convened yesterday to discuss the government’s recently-announced social cohesion package, Finance Minister Michalis Sarris said that despite Cyprus’ commitment, the government would not impose VAT on the three specific categories at the beginning of 2008. He added that the same would apply for the increase in fuel duty to 3.1 cents per litre, also scheduled for January 1.
Sarris informed the committee that Cyprus, working together with a number of new EU member states, had applied for a delay until 2010.
Sarris said that the application was being examined by the EU and a response was expected towards the end of 2007. He added that other countries had made the same application for food and pharmaceuticals. A similar demand by Cyprus had been rejected in the past.
“We are trying,” Sarris told deputies, “in collaboration with other EU partners, to delay for as long as possible our commitments to the European Union.
“Our estimation is that we will be able to delay the imposition of these taxes until the middle of 2008,” he added.
The Committee yesterday examined the six bills that form the government’s social cohesion package, including the increase in VAT, the plan to raise the income tax threshold by £750, the reduction of duty on various products as allowed by the EU and the reduction of duty on soft drinks by 6 cents per litre.
The new package of social cohesion measures includes the increase of low pensions at a total cost of £18.5 million, providing extra assistance to vulnerable groups of the population with another £17.85 million pounds, and measures to boost the birth rate, costing £15.9 million.
Sarris assured that if the measures proposed were approved by the House, the fiscal targets for 2007 and 2008 would remain unaffected.
The public deficit for 2007 is not expected to exceed 1 per cent of Gross Domestic Product, while the public debt will hit 61 per cent of GDP, while in 2008, the deficit will fall to around 0.5 per cent of GDP, and the public debt to 53 per cent, satisfying the EU’s requirements.
“Our aim is to continue our macroeconomic stability and a prudent policy requires savings during times when the economy has an excellent performance to be able to handle potential hard times, thus securing the future of the next generations,” the Finance Minister added.
Many of the measures which do not require the approval of the House will become effective from October 1, the Minister said.
AKEL’s Stavros Evagorou said the measures were too little too late, and that there could have been much more, pointing out that in the first half of 2007 there was a state surplus of £83 million and that with the increase in consumption taxes, the state would receive an added income of £250 million a year.
DISY’s Lefteris Christoforou agreed, saying the measures were insufficient considering the government’s income.
Coalition parties DIKO and EDEK backed the measures.
