The government is preparing a bill exempting from payment of the full 19 per cent VAT, purchases of undeveloped land for the purpose of building on it an owner-occupied primary dwelling.
Currently, when someone buys a finished housing unit or apartment as their primary dwelling they pay 5 per cent VAT, whereas buying a plot of land for owner-occupied housing incurs a 19 per cent VAT charge.
Lawmakers had called for a change, arguing it is unfair to newlyweds who typically are buyers of undeveloped land where they plan to build their primary house.
Under a bill being prepared by the finance ministry, such buyers would initially pay the full VAT rate, but would subsequently be refunded 14 per cent VAT, so that at the end of the day they pay 5 per cent on these transactions like everyone else.
A finance ministry official told MPs on Monday that the bill would be finished in two weeks, at which time it would be presented for ratification to the cabinet.
Once passed the law would have retroactive effect, applying to purchases made since January 1 of this year.
The state budget for 2019 will also need to be amended to factor in the extra expenditure from the anticipated VAT rebates.
The same official said he did not foresee complications, as the additional expenditures arising from VAT refunds would be relatively small, given that the monetary value of purchases of undeveloped building land since the start of the year is low.
At the same time, there continues to be a lack of clarity in the law passed back in November 2017 that imposed 19 per cent VAT on the sale of building land.
That law stipulated that VAT would be imposed on all sales of building plots taking place as part of economic activity.
It was left to the tax commissioner to decide, on an individual basis, whether a transaction is commercial or not.
Some MPs are complaining that this ambiguity leaves room for abuse or unfair treatment of buyers.
Disy MP Averof Neophytou said some transactions are being treated as commercial – in which case a capital gains tax of 20 per cent is imposed – whereas others fall under income tax which may be as high as 35 per cent.
One way to resolve the issue would be to apply a single rate for all transactions, he said.