Filenews 4 June 2025 - by Eleftheria Paizanou
Although the hourglass of time is running out and the time frame is tight, the Government claims that within six months - by January 2026 - it will prepare the bills for tax reform, inform the political forces, "pass" them through a legislative and technical audit to the Legal Service, submit them to the Ministry and then to the Parliament to be discussed and approved. Probably with additional conversions, so that they will be implemented on 1/1/2026...
It is difficult or unlikely to follow the schedules to the letter, as the summer holidays will also intervene, with the Parliament closed, while in the autumn the election debate for the parliamentary elections of May 2026 will already be underway. With all that this implies for the positions that most parties will express on the bills. And, in fact, in parallel with the debate on the state budget.
Yesterday, the President of the Republic insisted that it is possible for the new tax model to come into force from January 1, 2026, provided of course it is approved by the Parliament and signed by him. This was conveyed yesterday during the meeting held at the Presidential Palace, with the participation of the Minister of Finance Makis Keravnos, the Tax Commissioner Sotiris Markides and the team of the Centre for Economic Research of the University of Cyprus, which has designed and prepared the tax reform.
As President Christodoulides said, the goal of January 1, 2026 does not change. During the meeting, a road map was prepared for the procedures to be followed. The President gave instructions to the Commissioner of Taxation so that officials of the Department proceed with the preparation of the package of bills as soon as possible.
It is estimated that 4-5 pieces of legislation will be prepared, which will amend the tax scales, increase tax-free income, grant tax deductions due to the composition of the family, housing loans and the green upgrade of homes, as well as tax changes for businesses. At the same time, President Christodoulides called on the competent services to work on the upgrade of the state's technical infrastructure, so that the country's new tax model can be implemented without any problems.
Public consultation
After the preparation of the bills, the Tax Department will put the tax bills in public consultation for three weeks, so that the stakeholders can submit their comments. Some professional associations have already forwarded their suggestions to the Ministry of Finance and the JIT.
Yesterday, the government spokesman, Konstantinos Letymbiotis, when asked if the disagreements of the stakeholders were taken into account, clarified that there is no change in the philosophy of the tax model.
The bills will then be sent for legal and technical review to the Legal Service, which will approve them by the Council of Ministers as soon as it gives the green light. The next step will be to submit them to Parliament, however, it seems to be a difficult goal to promote them before the summer holidays, during which the Parliament will be closed for a month and a half. As things show, in the best case scenario, the bills will be tabled in the autumn.
Two feet in one shoe
The members of the Parliamentary Committee on Finance, in the midst of the debate on the state budget for 2026, will be called upon to examine and make decisions on such a grandiose project. The tax transformation. It is a given that there will be reactions from parties, which will falsify the suffocating timetables that will be set for them. However, the President of the Republic and the Minister of Finance, in order to prevent the reactions, will have meetings with the political parties to inform them about the tax reform bills, in order to ensure the acceleration of the debate and their approval by the Parliament.
It is worth noting that the pre-election period, due to the parliamentary elections of May 2026, is something that concerns the Government. There is concern that parties will seek changes in the bills, which may change the philosophy of the reform and lead to a loss of state revenues, which creates risks of fiscal derailment. What the competent minister will convey to the parties is that the loss of state revenues, with the exemption of some taxpayers, will have to be covered by other sources, i.e. it must be passed on to other taxpayers. Within the month there will be a new meeting on the issue, so that there is a clearer picture in relation to the timetables.
What will the bills provide?
The new tax model provides for the reduction of the tax burden for households and businesses and the enhancement of competitiveness and incentives for business development.
Among other things, the bills will provide for natural persons in the tax reform are an increase in tax-free income to €20,500 from €19,500 today (an increase of €1000), a diversification of tax scales and a transfer of the maximum tax rate of 35% to taxable income of more than €80,000.
In detail, the tax scales and tax rates are differentiated as follows: Specifically, annual incomes up to €20,500 will not be taxed, from €20,501-€30,000 the tax will be 20% and incomes from €30,001 to €40,000 the tax rate will be 25%. Also, for incomes from €40,001 to €80,000 a 30% tax will be imposed and for incomes over €80,000 the tax will be 35%.
At the same time, depending on the income of households, tax deductions will be granted, based on the income criterion of the total gross income of the household with two working partners or spouses up to €80,000. €1000 for each child, €1000 for each student, €1500 for instalments of a serviced housing loan and €1000 for a green upgrade of a first home.
As for the changes in businesses, bills will be prepared that will increase the corporate tax from 12.5% to 15%. It will also provide for the abolition of the estimated distribution of dividends and the reduction of the withholding tax on the distribution of actual dividends to 5%.
