Filenews 15 June 2024 - by Eleftheria Paizanou
By June 2025 – in exactly one year – the finance ministry will submit to parliament the legislative package for tax reform, according to Finance Ministry Director-General George Pantelis.
The last time there was a modernisation of the legal framework for tax legislation was twenty years ago. According to the Government, the new tax reform will be fiscally neutral, will encourage entrepreneurship, relieve households, will have a social character, will contribute to the equal distribution of income and at the same time will contribute to tackling tax evasion and avoidance.
The project of integrated tax transformation is carried out in collaboration with the Ministry of Finance and the Centre for Economic Research (NOC) of the University of Cyprus. The new legal framework and political guidelines are expected to be finalised in 2024.
A few months ago, the President of the Republic, Nikos Christodoulides, during the meeting he had with representatives of the project team, invited them to accelerate its implementation. At the same time, Finance Minister Makis Keravnos called on stakeholders to participate in the process for tax reform.
Some stages have been completed
The Permanent Secretary of the Ministry of Finance, George Pantelis, speaking to "F", said that the effort for holistic tax reform continues, adding that to date some of the key stages of tax reform have been completed. Among the stages completed are the recording and analysis of the existing tax system and the mapping of good practices of other countries.
In addition, basic tax principles and policies have been examined, their positives and negatives have been recorded, in order to draw qualitative conclusions. According to Mr. Pantelis, tax systems of countries that have carried out a similar tax reform in recent years have been examined. "The aforementioned analysis will result in recommendations and after conducting the necessary public consultation, relevant political decisions are expected to be taken," he noted.
Contacts for countervailing measures
As far as compensatory measures for green taxation are concerned, they have not yet been completed. Among the measures under consideration are the payment of a lump sum to vulnerable households and the strengthening of sponsorship schemes.
According to the Permanent Secretary of the Ministry of Finance, the compensatory measures considered by the JIT with the other bodies should be targeted and ensure fiscal neutrality. "The necessary public consultation is currently underway to make final political decisions," he added.
At the same time, he noted that the purpose of the compensatory measures is to provide support to society for a change in environmental behaviour to achieve the main objective of the reform, which is to contribute to the achievement of Cyprus' environmental goals.
Tiered increase in fuel tax
However, from the studies that have been done, it is estimated that green taxation will contribute to the reduction of pollutant emissions by an additional 3% to 3.5% by 2030, while compliance costs will be lower by €30 to €35 million by 2030.
The bills for the imposition of green taxation in 2025 foresee that the tax will be 5 cents per liter on fuel, with the state receiving revenues of €60 million. In 2026, green taxation will rise to 7 cents a litre and €90 million will end up in state coffers.
In 2027 the carbon tax will increase to 10 cents a litre, with the state collecting €120 million.
It is reminded that in the autumn both the bills on green taxation and the compensatory measures will be submitted to Parliament. The new measures will apply from 1 January 2025. It is recalled that green taxation is included in the prerequisites of the Recovery Plan and the approval of the legislation will contribute to the disbursement of the tranches by the EU.
