The Cypriot parliament's Finance Committee is nearing the conclusion of its review for a significant government tax reform package, with its chairperson indicating a final vote is imminent. This proposed legislation, designed to alleviate the considerable economic pressures affecting households, intends to revise income tax brackets and introduce new relief measures. However, the process has spurred a vigorous discussion about social equity, as opposition parties and labor unions argue that the government's draft unfairly benefits higher earners and fails to enact necessary systemic changes.
This legislative initiative follows more than two years of consultations and emerges amidst substantial economic transformations. Critics, notably the AKEL party and the PEO trade union, have consistently maintained that fiscal policies implemented since 2013 have worsened inequality. They highlight a pattern of increasing indirect taxation and a growing proportion of national income shifting from wages to corporate profits, thereby imposing a cumulative burden on low- and middle-income citizens. Consequently, the current reform is perceived not simply as an adjustment but as a crucial test of the government's dedication to redistributive justice.
Central to the government's proposal, strongly supported by Finance Minister Makis Keravnos, is an increase in the annual tax-free allowance to €20,500, a modest rise from a threshold that has remained unchanged since 2008. Further provisions include a €1,000 deduction for each child and an additional €1,500 for individuals purchasing their first home or renting. While the Ministry of Finance presents these as targeted assistance, opposition representatives like AKEL’s Andreas Kafkalias consider them inadequate. In a comprehensive submission, the PEO union outlined thirty alternative suggestions, advocating for a more substantial enhancement of the basic allowance and dependent deductions.
The committee's chairwoman, Christiana Erotokritou, acknowledged the urgent need for action, stating, "The people are expecting this reform, and they need it, as the financial pressures which Cypriot families are currently facing are real and intense." She emphasized the intricate nature of the negotiations, adding, "The goal is to reach the maximum we can, safely, to benefit Cypriot families, workers and low- and middle-income groups."
Beyond modifications to income tax, the discussion has broadened to encompass more extensive fiscal instruments. Opposition amendments propose implementing a new tax on real estate assets exceeding three million euros and a separate charge on large corporate entities. Additional proposals suggest reducing Value-Added Tax on electricity and energy-saving renovations to 5%, and eliminating it entirely on essential goods. Proponents contend these measures would directly counteract the regressive impact of indirect taxation and ensure a more significant contribution from wealth and capital.
With the government aiming for implementation at the beginning of the month following parliamentary approval, the legislative schedule is tight. The outcome will profoundly influence the disposable income of a significant portion of the population and reshape the progressivity of the Cypriot tax system. Whether the final legislation will closely resemble the government's initial proposal or incorporate more substantial redistributive elements remains the primary question as the committee moves towards its decisive vote.