Filenews 8 June 2022 - by Eleftheria Paizanos
A European directive prevents the abolition of VAT on excise duty. Therefore, against this background, AKEL's law proposal to end the imposition of VAT on excise duty on fuel cannot go ahead.
On the occasion of the discussion of the law proposals of AKEL, DIKO and DIPA for horizontal support of consumers, households and businesses, the General Director of the Ministry of Finance George Pantelis, in a reply letter to the members of the Parliamentary Committee on Finance, stresses that the acquis communautaire does not provide the possibility of not imposing VAT on excise duty. Moreover, in response to the question of members of parliament whether other Member States of the European Union (EU) do not impose VAT on excise duty, he notes that this will be investigated through a question that will be sent to the competent Directorate of the European Commission.
They could not for other derogations
Mr Pantelis also suggests that the new proposal for VAT rates, based on the European Directive of 5 April 2022, provides increased flexibility for Member States to conduct the policy in relation to the application of reduced VAT rates. "The framework through which the Member States implement this policy is still defined by the Community Directive," he adds. At the same time, it notes that, during the discussions, the Member States were not entitled to claim new derogations from the acquis communautaire, stressing that the negotiation concerned the existing derogations of the Member States and the right of the other EU states to apply them under the same conditions. According to Mr Pantelis, a full list of Member States' derogations is expected to be published soon by the EU.
Reduced rate on LPG
In relation to spikes left by the opposition, which argued that the government in the context of the discussions on the new VAT directive governing the issue of rates had not asked to receive a derogation from the EU, Mr. Pantelis notes that the government has sought to maintain the derogation it had secured pre-accession for the imposition of a reduced VAT rate on LPG supplies in cylinders until January 1, 2030. It also stresses that Cyprus has the option of applying any of the derogations of the other Member States, after their publication. At the same time, Mr. Pantelis assures that the Ministry of Finance will study the framework of reduced rates after the publication of the derogations of other Member States and will make the appropriate recommendations, in order to achieve maximum benefit for citizens and businesses.
Increases in wages
Meanwhile, in his reply letter, Mr. Pantelis underlines that due to the increase in inflation, wages are expected to increase through the ATA. "Inflationary trends in the current period also affect the expenditure side of the state, as it increases the state's expenditure on intermediate consumption, as well as the expenditures adjusted due to the indexation allowance," he adds. As he points out, the total cost of applying automatic indexation to salaries, pensions and allowances of state employees will amount to €130 million annually, pointing out that costs are not recovered in the event of a price reduction.
Bell from government for dangers
As is well known, the government disagrees with the law proposals of AKEL, DIKO and DIPA, which will have a budgetary cost of around € 282 million per year. He also stresses that parliamentary scrutiny is respected, but any law proposals should also respect the government's right to conduct its economic and fiscal policy and not to derail government policies and endanger state revenues. In addition, it underlines that the additional fiscal costs incurred by the proposals affect macroeconomic stability and the liquidity of the state. In conclusion, he stresses that the adoption of the law proposals will lead to the adjustment of the state's financing strategy, which will oblige it to finance a higher level of public debt and endangers the medium-term sustainability of public finances.
