VAT to be raised to 15% over next three years

By Charlie Charalambous

THE government is to increase Value Added Tax to 15 per cent – but gradually over a three-year period, Finance Minister Christodoulos Christodoulou said yesterday.

“It is only right that the increase of VAT to 15 per cent from 8 per cent be done gradually because the Cyprus economy cannot endure a sudden increase in the last year (2002) or within six months,” Christodoulou told a press conference in Nicosia.

He said the increase in VAT was unavoidable because it was part of the EU harmonisation process.

But the island’s EU accession is part of the reason for the government’s growing public deficit, expected to top last year’s figure of 5.4 per cent.

The increase in the public deficit is explained by a drop of £300 million in public revenue as a result of Cyprus’ EU customs agreement, said Christodoulou.

To offset higher VAT the government will introduce tax relief measures for those on lower incomes.

“We intend to propose generous social measures to maintain the existence of a large middle class,” he said.

Referring to the total cost of the S-300 missiles, Christodoulou said the final amount was £115 million, most of which has already been paid.

Although he declined to confirm whether Greece would pay the remainder, he did say he believed there was a way to fill the S-300 gap with similar defence weapons costing the equivalent amount.

The minister wouldn’t say how this could be achieved. The defence fund showed a £300 million deficit, he said.

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.