As published on: in-cyprus.philenews.com, Thursday 16 November, 2023.
Cyprus’ forthcoming tax reform beginning in spring 2024, will extend beyond green taxation.
It will reportedly encompass a broad spectrum, targeting the legal framework of corporate tax, income tax, capital gains tax, stamp duties, and additional forms of taxation.
Among its objectives is the shift of tax burdens from labour to other forms of taxation, aiming to curb tax evasion and shadow economy practices.
As detailed by the Ministry of Finance to Parliament, the reform represents a blend of tax policies, considering effectiveness, redistributive impacts, tax compliance, and administrative costs.
The new tax regime, according to the Ministry, will be anchored in a combination of green and digital transition elements, aligned with the Recovery and Resilience Plan, European Union tax trends, and international standards.
The initial phase, expected in the first quarter of 2024, will introduce a carbon tax, known as the green tax (initially on fuels), alongside compensatory measures to alleviate the impact on affected sectors.
The precise rate of additional taxation per fuel type and the nature of compensatory measures are yet to be determined. The green reform is included as part of the prerequisites for the Recovery and Resilience Plan.
Additional points of focus will include:
Promoting investment and tax policies to mitigate business risks, encouraging funding for research. Simplification of the tax system and reduced tax costs will foster innovation, investment, and competitiveness.
Shifting a portion of the tax burden from labour to other forms of taxation, such as consumption, green taxation, and real estate, aiming to bolster employment. Labor taxation in the EU is relatively high compared to other developed countries.
Green taxation to support environmental goals by taxing polluting activities and promoting green practices. The progressive nature of green taxation, impacting lower-income brackets, necessitates compensatory measures, a facet anticipated in Cyprus too.
Curbing shadow economy practices and limiting tax evasion, a prevalent concern in Cyprus, constituting a significant share of the GDP. The tax reform aims to address this issue.
The agreement between the Ministry of Finance and the University of Cyprus for conducting the study of tax reform will span two years, with a potential six-month extension, totalling €1.02 million.