Filenews 1 February 2026 - by Eleftheria Paizanou
The Minister of Finance, Makis Keravnos, sent a strict message to the parties that are asking for new taxes for the banks.
In an interview with "F" and commenting on the legislative regulations proposed by AKEL and ELAM, he called on the two parties to weigh all the data, as the European supervisory authorities disagree. At the same time, he points out that Cyprus has started to repay borrowing of €6.5 billion he received from the European Stability Mechanism, adding that our country is one of the few in the EU that continues to tax the banking system twice. It also indicates that, based on the supervisory guidance, there is a need for additional provisions and capital.
As the minister notes, excessive liquidity is also a risk for the banking system. Referring to the efforts to change the legal framework for foreclosures, he stressed that this is not a simple issue.
In relation to the tax reform, Mr. Keravnos emphasizes that it affects the majority of citizens, while commenting on the reactions that taxpayers who are below the tax-free of €22,000 do not benefit, he states that they are not taxed and are supported through the various plans of the Deputy Ministry of Social Welfare.
The Minister of Finance also refers to the pension reform, through which low pensions will be increased. In conclusion, he refers to the recent successful exit of Cyprus to the markets, which will have a positive impact on citizens.
– AKEL is making a second attempt to tax the banks' super profits, while ELAM has submitted a proposal for a law that increases the banks' special tax. In the event that these law proposals are approved, do you think there will be any destabilization in the economy?
The views of the parties are respected, but there are also the views of the IMF, there are the views of the European Stability Mechanism, which has lent us billions and which we have started to repay from this year. We pay about one billion euros a year and we have a total of €6.5 billion to repay.
In addition, we must also weigh up the fact that we are one of the few countries in the European Union that continue to tax the banking system twice. One concerns the taxation of profits and super profits, with an increase in the rate to 15%, which is the rate agreed in the OECD and, as far as Cyprus is concerned, focuses mainly on banks. The second taxation concerns taxation at a rate on deposits.
Therefore, those who are thinking about this issue should weigh all the facts, because we are a member state of the European Union, we are evaluated by the institutions of the European Union and we must operate within the European framework. In addition, the European Central Bank, which supervises our systemic banks, i.e. the three big banks that we have, has also taken a negative position on this issue. And all this cannot be accidental.
AKEL, however, cites a report by the European Commission, which has shown that the banking system in the Baltic countries was not affected at all by the implementation of bank taxation.
On the basis of very specific cases, we cannot draw up horizontal policies. The Baltic countries were new countries, with particularly high bank capital and could for a short period of time proceed with some actions that would reduce their capital adequacy, but without the risk of any problem. We must also weigh the fact that our banks have gone through the so-called "haircut".
Only recently have Cypriot banks reduced problem loans from their balance sheets and their capital adequacy is currently in good shape. At the same time, however, based on the instructions of the supervision, there is a need for additional provisions and, for some banks, even a need for additional capital adequacy. Therefore, all this should not escape attention when submitting any proposal.
Why do banks need additional provisions and capital? Since the country's banking system is robust, have any directives changed?
Supervisory agencies, as well as the European Central Bank, constantly warn that there are negative geopolitical and geo-economic developments. If you look at the latest assessment of the Cypriot economy, by Moody's, there is a specific reference to the fact that the risks for the banking system have not disappeared. In addition, the risk is not only the level of capital adequacy, but also the existence of excessive liquidity, which, however, cannot be absorbed by the economy, for specific reasons.
Tax reform: Rejects complexity
Are you satisfied with the results so far? There are voices that speak of complexities. What do you answer?
The tax reform is very important and reaches the vast majority of citizens. In particular, it emphasizes some directions that are also strategies of the Government, such as housing, the low birth rate and the green transition. This is therefore a very important reform.
As for the claim that it is complex, I think that this cannot be substantiated, because today there is technology and electronic platforms and in fact the modern electronic platform of the Tax Department, which is being strengthened even more.
Therefore, all the issues that used to be considered complicated, in the sense that you had to count, subtract, add, one child, two children, etc., all this is done automatically now. So, there is no question of complexity. There may be an issue of interpretation, so that some people understand exactly what some new provisions of the tax reform mean, but which are answered directly by the Tax Department. The Department has built information mechanisms with examples, with questions and answers, which anyone can find on the website or print them. Information seminars have also been planned and have begun, in which an estimated 10,000 people will participate.
– From the first weeks of the implementation of the reform, some ambiguities have been identified, for which the Parliament will legislate in order to overcome them. Will you restore some of the provisions left out by the Parliament as a Government? (e.g. the provision by which the Registrar would stop sales) Will the Government restore the provisions that were left out?
Nope. All these views have already been discussed. Some issues have been accepted, alternative ways of handling and dealing with them have been found. For example, there was a disagreement on the issue where the Tax Commissioner could shut down a business for not enforcing some regulations. A way out has been found there, so that this can be done after warning letters, giving some time for the operation to respond. In any case, the conclusion is that this can only be done when there is a court decision.
A climate of populism and cannibalism
– In Parliament there were protests from some parties, because those who are below the tax-free allowance of €22,000 will not benefit from any tax deduction. For this category, is the Government preparing any other support measures?
First of all, the tax-free amount has been increased to €22,000. Therefore, more of the low-paid will not be taxed at all. And this is very innovative. It does not exist, at least in this percentage, in any country in Europe. We were first in terms of the amount of the tax-free allowance (€19,500) and now we have another increase.
Beyond that, for these categories of people, let's not forget that there is an entire Deputy Ministry of Social Welfare, which has a budget of about €870 million, which are allocated for social and cohesion policy.
In addition, let's not forget that there are many other institutions, such as the institution of state scholarships, the institution of student allowances and a specific and generous policy regarding child benefits, in addition to the reliefs that one can get from the amendments of the new tax reform. There is also the institution of the guaranteed minimum income.
– In other words, do you think that it was just populism on the part of some parties, which claim that this category of citizens has been left out, since the state provides them with support?
If there is populism... I don't think you will find a Cypriot citizen who will tell you that there is not a huge wave of populism and cannibalism at this juncture. The citizens, however, have a crisis and we rely on this judgment of the citizens. In any case, all the Government's reforms have a very good result for our economy, which I think is difficult to dispute.
No business will leave due to a corporate tax increase
– There were strong reservations about the increase of the corporate tax to 15%. Were there any businesses that have been affected and have warned you that they will eventually leave?
No business has warned us, nor has there been any report that businesses will leave. The increase was necessary because one of the goals of the tax reform was to have a better distribution of the tax burden. For this very reason, the 17% in defense dividends was abolished and reduced to 5%, so that there is better and more equal treatment of our businesses.
Also, 15% was necessary to harmonize with Pillar 2, which is a decision of the OECD and the European Union and concerns its application to specific businesses.
The country's exit to the markets was a success. The country exceeded its financing needs 16 times, as bids reached €16.5 billion. What impact will this successful exit have on the citizens?
It is conveyed in many ways to the citizens. First of all, let me say that this great success in our exit to the markets is due to the sound economic policy implemented by this Government. It is not a random event, but the result of all the financial manipulations made by the Ministry of Finance and the Government in general.
The great benefit for the citizens is that with this borrowing we maintain our surpluses and, through them, we reduce the public debt. While the target was to reduce to 60% by the end of 2026, it has now been reduced to 55%. As a result, financial capacity is freed up for the state to proceed with additional development spending and to improve social policy. Therefore, all this is interconnected and at the end of the day it carries over to the improvement of the general well-being of citizens.
Will Cyprus enter the markets again within the year? If so, what will be the goal?
At the moment there is no such planning, despite the fact that for very small amounts, which concern some small bonds that may mature, there are some small exits and renewals of small bills. This must be done for two reasons: firstly, to keep in touch with the markets, and secondly, where we can achieve a better management rate, to take advantage of it, taking advantage of the good indicators of our economy.
Beware of defaulters
Due to the parliamentary elections, some parties have begun to bring up the issue of changing the legal framework for foreclosures. To what extent will the state consent? Are changes in the legal framework being considered?
In the context of foreclosures, there is very specific legislation, which was enacted by previous governments and has been approved by competent committees of the European Union. As a Government, we have introduced various measures, the latest being the "Rent Against Instalment" plan, so that those who have debts on problematic loans can be helped to settle their issues. Beyond that, there is a more general issue concerning public finances and the companies that have acquired the problematic loans.
Therefore, this is a wider network of issues that needs to be studied and it is not just a matter of stopping foreclosures. It is not that simple, because we will also have to see what messages are given to strategic defaulters. In addition, this Government has strengthened the institution of the Financial Commissioner, has institutionalized various tools and bills have been passed to alleviate the problems.
-These tools, however, are not used by citizens to the extent expected.
Everyone should behave responsibly. Every day we are concerned with the issue and interventions are made, without affecting the entire system concerning problematic loans. We help as much as possible, through suggestions, where they can be accepted.
–Are there any thoughts about implementing new plans, such as "Estia" or "Rent Against Instalment"?
At the moment there are no such thoughts. The last plan is the "Rent Against Instalment", which is implemented to a satisfactory extent. There are some individual problems, which are being monitored.
