AUSTERITY measures amounting to some €750 million in 2011 and 2012 were announced last Wednesday by the Cyprus Finance Minister, Kikis Kazamias.
The measures include plans to raise the VAT rate from 15% to 17% per cent, increase income tax from 30% to 35% for those earning €60,000 a year or more, and a higher tax on the interest on bank deposits, which is currently 10% and which may be increased to 15%.
Plans to change immovable property tax were also announced. These reduce the amount at which immovable property tax becomes payable from €170,000 to €120,000. Owners of properties whose 1980 value is €120,000 or less will still be exempt, but then the tax is assessed on a sliding scale:
- Owners of property having a 1980 value between €120,001 and €170,000 will pay 0.4% tax.
- Owners of property having a 1980 value between €170,000 and €300,000 will pay 0.5% tax.
- Owners of property having a 1980 value between €300,000 and €500,000 will pay 0.6% tax.
- Owners of property having a 1980 value between €500,000 and €800,001 will pay 0.7% tax.
- Owners of property whose 1980 value is €800,001 or more will pay 0.8% tax.
The government anticipates that these changes to immovable property tax will raise €24.2 million.
Last month, the Cyprus Land & Building Developers Association wrote to President Demetris Christofias calling on him not to increase taxation as this would cause a further deterioration in the business climate and increase unemployment.
However, the announcement of a 2% hike in the rate of VAT and increases in property taxes will add to the chronic problems facing the Island’s property market and the Land & Building Developers Association has written to president Christofias again expressing the concerns of its members.
Other countries have recently reviewed their taxation systems to help revive their ailing property markets.
In Ireland, for example, the government has reduced the stamp duty for deeds to 1% on the first €1,000,000 and 2% on the remainder.
The government of Holland has just announced plans to cut its overdrachtsbelasting (conveyancing tax) from 6% to 2% for a year in an effort to boost its housing market.
And in Spain, another country facing economic hardship, the VAT rate for new houses is just 7%.