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Cyprus Internet Directory [ Government to take sting out of VAT hikes ]

Government to take sting out of VAT hikes

THE GOVERNMENT will offer the public compensatory measures to help meet the inevitable increases in land and diesel VAT, the Finance Minister announced yesterday.

Charilaos Stavrakis was referring to the increases that are set to take place in the second half of 2008 and which are part of Cyprus’ obligations to the EU.

VAT on land sales will be introduced at 15 per cent and will only apply to commercial transactions.

Consumption tax on diesel will increase to 5.5 cents per litre and in combination with other related duties, will reach 7 cents per litre.

To deal with this, Stavrakis said the government was examining the possibility of compensating land VAT increases by returning the transitional duties to the buyer. Similarly, diesel increases could be counterbalanced by reducing the cost of road tax.

The minister announced the government’s intentions to the House Communications Committee yesterday, where he also informed deputies on the current state of the economy.

In general terms, Stavrakis said the state’s income was showing an increased slow-down.

Pointing out that Cyprus had a duty towards the EU to have a 0.5 per cent surplus at the end of this year and a 0.7 per cent surplus in 2009, the minister said there was an increase in inflexible expenditures every year that reach 80 per cent of the state’s expenditures, leaving 20 per cent for developmental expenses. “In view of the reduction in state income, the only choice is to reduce developmental expenditures,” he explained.

Stavrakis also pointed out that public finances were going to experience a further €4 million setback – the cost of transporting water from Greece due to the on-going drought. He said these costs were not going to be transferred to consumers, while the state’s income from VAT and income tax was set to reduce due to the energy crisis.

Concluding, the minister said he would start meeting with the political parties to discuss developments in the economy and evaluate the feedback.

The Chairman of the House Commerce Committee, Lefteris Christoforou of DISY, said the new increase in fuel consumption tax, coupled with the VAT and KODAP (the Cyprus Organisation for the Management of Oil Reserves) fee, will lead to a full 7 cents per litre increase, which will “undermine the Cyprus economy and make the oil costs unbearable”.

He added that this would have a chain reaction of effects on the economy and society, and called on the Finance Ministry to ask the EU for a postponement or exemption from the decision. “And we want a survey submitted of the consequences and measures that will be taken so that the public does not absorb the cost again,” said Christoforou.

(Source: Cyprus Mail)

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