Filenews 22 September 2023 - by Eleftheria Paizanou
The bill reducing the special defence levy imposed on deposits will provide small revenues to depositors. The cut-off will be reduced to 17% from 30% today.
Yesterday, the Ministry of Finance submitted the relevant bill to the Plenary of the Parliament, which was referred for discussion to the parliamentary Committee on Finance. The government tabled the bill as a measure to pressure banks to revise their low deposit rates, despite the fact that lending rates have been raised 14 times by the ECB over the past 10 months to tackle inflation, ensuring large profits for banks.
The Ministry of Finance estimates that the reduction of this tax will directly contribute to increasing the disposable income of households, will strengthen investment activities and at the same time will encourage citizens and businesses to save money. In addition, according to the ministry, it will help consolidate confidence in the banking system.
From the reduction of this tax, the state will lose revenues of €16 million annually. Since 2013, when Cyprus joined the fiscal consolidation memorandum, this tax has been increased to 30%. Under the existing framework, the taxation of credit interest is set out in the Special Defence Contribution Act, where a 30% levy on credit interest is withheld at source. The main source of enforcement is interest from bank deposits of legal and natural persons, in cases where their incomes exceed €12,000. Credit institutions, according to the law, have the obligation to withhold the contribution for defence at source and then pay it to the fixed fund of the Republic.
The tax exemption is lifted
In the meantime, a bill has also been tabled in plenary that will abolish the exemption from income tax for certain companies. According to the bill, a specific article of the law is deleted, which exempts from tax the income of a company established solely for the promotion of art, science or sports and which did not make a profit. This provision, which was adopted as of 2022, has been inactive since the law was passed. According to the ministry, although the relevant provision is inactive, it could also lead to abusive practices, in order for some to obtain tax exemption.
