Cyprus Mail - Our View - 21 February 2023
It is quite astonishing how the political parties are pretending not to understand the issue of reduced VAT on the purchase of a primary residence, which the government has been at pains to settle for more than a year and a half. Infringement proceedings were activated by the European Union in July 2021 on the grounds that there was extended abuse of what had been implemented as a social policy measure.
This was much more than a social policy measure. Even citizenship by investment scheme property buyers benefited from the measure, which was supposed to make housing affordable to first-time buyers who would pay five instead of 19 per cent VAT on the first 200 square metres of a property. There was no limit to the value of the property which resulted in someone buying a 500 square metre property worth a million euros still getting the discount.
The European Commission eventually saw the measure for what it was – a general discount for all first-time home buyers, regardless of how wealthy they were. It could not have been described as a social policy measure by any stretch of the imagination. With infringement procedures against the republic in progress, the government has proposed an amendment to the existing law so it would operate as social policy, and tabled it to the legislature several months ago.
The government’s proposal is reasonable – five per cent VAT on 170 sq. m. of properties no more than 220 sq. m, valued up to €200,000 – was seen as acceptable by Brussels, but the parties want to broaden eligibility. The House finance committee has been discussing the amendment proposal for months, with parties coming up with alternative proposals. No decision was taken and at Monday’s meeting of the committee deputies have sought to have the discussion of the bill, scheduled for the first session of the plenum on March 9, postponed so that the new finance minister could deal with the matter.
They want the minister to go back to Brussels for new negotiations because they consider the government proposal unsatisfactory. The irony is that the same finance ministry technocrats would be negotiating with Brussels under the new minister and are unlikely to gain anything. Meanwhile it is far from certain the Commission would agree to negotiate the matter again considering it has given its go-ahead to the proposal before the House.
What credibility would the Cyprus government have, demanding negotiations to broaden the number of buyers (people who should not be receiving any discount) eligible for reduced VAT? We seem to go out of our way to raise suspicions that we want to fool Brussels. In this case, we have not given up turning what is dressed as a social policy measure into a price discount for all first-time buyers.
