Cyprus Considers Tax Hikes
March 12, 2013 Taxation in Cyprus
NICOSIA – The international bailout loans for Cyprus are hanging in the balance as discussions are held between its government and the international society over the possibility that the country could raise tax rates or even introduce new taxes.
On March 11th new independent reports emerged in the local press in Cyprus, claiming that the government is considering raising the country’s corporate tax rate and enacting a tax on financial transactions as part of its bailout package from the European Central Bank, the European Commission and the International Monetary Fund.
Currently the rate of corporate income tax in Cyprus stands at 10 percent, one of the lowest in the Europe, but the government is now said to be giving consideration to hiking the rate by between 2 percent and 3 percent.
According to current estimates, each 1 percent hike in the country’s corporate income tax rate could lead to an increase in tax collections of EUR 60 million.
The government is also mulling the possibility of instating a temporary hike to the rate of capital gains tax, although there is no official word yet on how significant the increase could be.
The media reports also suggested that inter-government discussions are currently being held on the feasibility of implementing a tax on financial transactions in Cyprus, but so far the national government has been largely against the move.
The intention behind these proposed changes is to satisfy the conditions imposed on the government of Cyprus by the European Central Bank, the European Commission and the International Monetary Fund in regards to the country’s potential EUR 14.8 billion bailout loan.
According to the media speculations, if the loan is granted the total sovereign debt of Cyprus will hit 140 percent of GDP, which is considered by the IMF to be unsustainable, and would necessitate moves by Cyprus to raise greater tax revenues in order to meet the required repayments.
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