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Fall in tax revenue attributed to Cyprus property market collapse

The drop in Cyprus tax revenue collections is entirely attributable to the collapse of the property market and it raises concerns that if foreign demand fails to recover, the government will lose a significant source of revenue permanently.

TOTAL tax revenues collected by the Cyprus Inland Revenue Department during the first ten months of 2009 fell by 15% to €1.45 billion from €1.72 billion during the same period last year; a reduction of €261.71 million.

This drop is entirely attributable to the collapse of the property market. And it raises concerns that if foreign demand for property fails to recover the government will lose a significant source of much-needed revenue for ever.

Capital Gains Tax receipts in the Jan-Oct 2009 period fell by a massive 79% to €59.9 million from €278.86 million a year ago as the number of property transactions fell sharply and in some areas came almost to a standstill.

Inland Revenue Tax CollectionsJan – Oct 2009
€ millions
Jan – Oct 2008
€ millions
Increase/ Decrease
€ millions
Income Tax
– Employees399.61355.3544.2512.5%
– Self employed47.4548.11-0.66 -1.4%
– Corporation Tax556.44612.19-55.75 -9.1%
Immovable Property Tax9.7710.63-0.85 -8.0%
Capital Gains Tax59.95278.86-218.91 -78.5%
Special Contribution to Defence Fund306.18313.68-7.50 -2.4%
Stamp Duty34.1856.61-22.43 -39.6%
Penalties35.3436.55-1.21 -3.3%
Other Taxes7.996.651.3520.2%
Total Collections1,456.921,718.63-261.71 -15.2%

Inland Revenue Tax Collections (source: Cyprus Inland Revenue Department)

On the other hand, Income Tax from employees increased by 12.4% to €399.6 million, whilst Corporation Tax fell 9% to €556.4 million. Revenue from the 10% Special Contribution to Defence Fund imposed on bank deposits fell marginally by 2% to €306.1 million as total deposits placed with the banks also fell during the period.

The figures are in line with other government statistics, which show that that during the first ten months of the year, the number of property sale contracts deposited at the Land Registries fell by 50%.

Number of Properties Sales – 2008/2009 Comparison
Total Sales295118151800708263611972911162329631272132616615
% Change-38%-61%-55%-44%-57%-50%

Cyprus Property Sales (Source: Cyprus Land Registry)

According to the October figures, the Finance Ministry estimates that the deficit in the first ten months of 2009 stands between 3% and 3.5%, paving the way for an excessive deficit procedure against Cyprus in the spring of next year

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