The Cypriot parliament’s Finance Committee is entering the conclusive phase of deliberations on a sweeping government tax reform package, with its chairwoman indicating a final vote is imminent. The proposed legislation, aimed at alleviating mounting economic strain on households, seeks to adjust income brackets and introduce new relief measures. However, the process has ignited a robust debate on social equity, with opposition parties and labor unions contending the government’s draft disproportionately benefits higher earners and falls short of a necessary systemic correction.
This legislative push culminates over two years of consultations and comes against a backdrop of significant economic shifts. Critics, notably the AKEL party and the PEO trade union, have long argued that fiscal policies since 2013 have exacerbated inequality. They point to a trend where indirect taxation has risen and a growing share of national income has shifted from wages to corporate profits, placing a cumulative burden on low- and middle-income citizens. The current reform is thus viewed not merely as an adjustment but as a pivotal test of the government’s commitment to redistributive justice.
The cornerstone of the government’s proposal, championed by Finance Minister Makis Keravnos, involves raising the annual tax-free allowance to €20,500, a modest increment from a threshold that has remained static since 2008. Additional measures include a €1,000 deduction per child and an extra €1,500 for first-time homeowners or renters. While the Ministry of Finance frames these as targeted relief, opposition figures like AKEL’s Andreas Kafkalias deem them insufficient. In a detailed submission, the PEO union presented thirty alternative proposals, advocating for a more substantial increase in the basic allowance and dependent deductions.
The committee’s chairwoman, Christiana Erotokritou of the DIKO party, acknowledged the pressing need for action. "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 stated on Friday. Emphasizing the delicate balance of the negotiations, she added, "The goal is to reach the maximum we can, safely, to benefit Cypriot families, workers and low- and middle-income groups."
Beyond adjustments to income tax, the debate has expanded to encompass broader fiscal tools. Opposition amendments call for the introduction of a new levy on real estate assets valued above three million euros and a separate charge on large corporate entities. Further proposals advocate reducing Value-Added Tax on electricity and energy-saving renovations to 5%, and eliminating it entirely on essential goods. These measures, proponents argue, would directly address the regressive nature of indirect taxation and ensure a more substantive contribution from wealth and capital.
With the government aiming for implementation at the beginning of the month following parliamentary approval, the legislative timeline is constrained. The outcome will significantly impact disposable income for a broad swath of the population and redefine the progressivity of the Cypriot tax system. Whether the final bill will hew closely to the government’s original framework or incorporate more radical redistributive elements remains the central question as the committee moves toward its decisive vote.