President urges swift progress on tax reform

President Nikos Christodoulides on Thursday met with the advisory committee on tax reform, asking that progress on this matter be accelerated, in order to reap any benefits at the earliest opportunity.

The meeting, which took place at the Presidential Palace in Nicosia, also involved Finance Minister Makis Keravnos, and allowed the president to be briefed on the progress recorded so far.

In statements after the meeting, Keravnos said there is satisfaction that work is progressing at a satisfactory pace.

The goal of this tax reform, he said, is “to encourage entrepreneurship, relieve households, have a strong social character, and contribute to the fair distribution of income.”

He also said that the tax reform aims to address any tax evasion and avoidance, while it will also be fiscally neutral.

“We have asked the University of Cyprus to intensify the pace to the extent possible so that we can have results as close as possible,” he said.

On his end, economist George Syrichas, on behalf of the Centre for Economic Research at the University of Cyprus (CypERC), which has been tasked with a comprehensive tax reform of the Cypriot economy, reported that the president was briefed on the progress of the work and the next steps.

He explained that the first six phases of the tax reform have almost been completed, while extensive consultations have been and continue to be held with various entities of the Cypriot economy.

He also noted that the committee exchanged views with the president on the green transition and green taxation, which are part of the tax report.

In addition, reference was made to the estimates of the CypCER regarding compensatory measures so that the impact of the green transition is as painless as possible for households and businesses.

“The president shared with us how he sees the tax reform and stated that he expects it to contribute to the competitiveness of the Cypriot economy, and to be investment-friendly,” Syrichas said.

“The president mentioned that he expects the tax reform to maintain social cohesion and, if possible, to reduce inequalities,” he added.

Syrichas also noted that “we assured the president that the guidance he has provided with has already been implemented in the tax reform”, explaining that “these parameters are very important and we are examining them”.

Furthermore, Syrichas said that the president requested “to expedite the tax transformation as much as possible and to complete our work as soon as possible, because he attaches great importance to this work.”.

He added that “we will try to bring it as far forward as possible,” so that more consultations can be held with organised groups and citizens.

Moreover, he stressed that tax reform, including the green transition, is very important for the economy to remain competitive.

Specifically, he said, the cost of energy in the Cypriot economy today amounts to 40 cents per kilowatt-hour, while other [countries] produce energy for 15 cents.

The import and use of fossil fuels, he said, have a cost exceeding €1 billion, while he also noted that it has been estimated that pollutants cost an additional half a billion euros per year as a burden on public health.

“This is why the green transition is essential. It will have a cost, but this will be returned to the citizen, it is not tax revenue,” he stated.

“If we lag behind in the green transition, we will continue to pay increasing costs,” he stressed, noting the increasing trend of foreigners who are moving towards green hotels and buying green products.

“If we do not change, they will not prefer us [as a destination] in the future,” he added.

When asked about the expected timeline for compensatory measures related to green taxation, he mentioned that they are currently under consideration.

These measures will be unveiled simultaneously with the implementation of the new tax policies, forming a comprehensive package.

“It will take a little longer than we initially estimated. The Ministry of Finance will determine exactly when this will take place,” he stated.

In response to a question about whether the committee assesses proposals like the one put forth by Disy regarding the taxation of family income, he confirmed that they do.

He stated that proposals from all organised groups are carefully reviewed, and meetings with the relevant parties will also be scheduled for further discussion.

“It is a broad piece of work, so it is good to hear from all interested parties to form a comprehensive opinion,” he said, noting that “consultations will not only take place once”.

“When we process and measure them, we will return, until we reach a balanced package that will help the economy for the next 20 years,” he said, adding that tax reform is not done regularly.

“That is why we need to be careful,” he stressed, noting that the CypERC counts the impact of each proposal, both on public finances and on businesses, households, and the economy as a whole.

He also noted, responding to another question, that, although tax reform should safeguard public finances, tax reform will not be akin to tax-collecting.

“It will be more to improve the finances of households and businesses and to keep the economy competitive,” he concluded.