Filenews 27 April 2023 - by Eleftheria Paizanou
The list of products whose VAT will be reduced to zero has been locked, while those for which the rate will be reduced from 19% to 5% have not yet been determined. The zero or reduction of VAT on some products will help curb inflation and will give little breathing space to households, which due to high prices hardly make a month.
Measures to address inflationary pressures are more necessary than ever, as in Cyprus, food prices in February this year had "run" by about 10% compared to February '22, while a slight decrease in the rate of increases -compared to February '23- was recorded in March, which also recorded increases compared to last year's corresponding month.
Indicative of the prevailing situation are the data, according to which the prices of bread and cereals have increased by 12.6% compared to last year, the price of meat increased by 17.8%, seafood by 11.8%, milk, cheese and eggs by 15.2%, olive oil and margarine by 31.1% and sugar by 13.1%.
Rezero to five products
According to information provided by "F", the Ministry of Finance has completed the study on products that can be reduced to zero VAT. As "F" is informed, bread, milk, baby food, diapers and baby milk will be exempt from VAT for some time. Today, food listed by the Ministry of Finance is subject to 5% VAT. A competent government source, speaking to "F", did not exclude the possibility that the list of zero VAT will include some additional products that have great weight every week in the needs of households.
Are the elements for VAT reduction evaluated?
At the same time, the technocrats of the Ministry of Finance continue the study in relation to the products for which it is possible to reduce VAT to 5%. As we have been told, the data collected by the Ministries of Finance and Energy are being evaluated in order to finalize the list of products. Once both lists of products have been established, the Cypriot authorities are expected to forward them to the relevant directorate of the European Commission, which will examine them to determine whether the reduction or zero of VAT is justified. The measure will initially be implemented for a period of six months so as not to significantly affect the state's finances due to the loss of revenue.
Safeguards will be included
At the same time, the study continues on the inclusion of safeguards that will prevent profiteering. Among other things, the Government will seek to ensure that businesses do not increase product prices. Essentially, he wants to avoid the problems faced by Bulgaria, which in 2022 had reduced VAT on bread and flour, but the measure had become ineffective. This is because the benefit of zero VAT did not reach consumers, due to additional increases imposed by businesses. However, in Cyprus it is estimated that with the operation of the digital platform "e-kalathi" through which the prices of 350 products will be posted in the first phase, it will be ensured that businesses, despite the reduction of VAT, will not increase prices.
A decision of the Minister is expected soon
Both the reduction and zero of VAT on specific products can be done on the basis of the European Directive 2022/542, which allows member states to reduce or zero VAT rates on certain consumer products. In April last year, the European Commission told all European Union member states that they could reduce or eliminate taxes on certain products to compensate for price increases brought about by Russia's invasion of Ukraine. It is estimated that the Ministry of Finance will put its proposal at the next meeting of the Council of Ministers. It should be noted that the measure will be implemented through a decision of the Minister and not through a bill.
