The island’s entrepreneurs rejected on Wednesday any notion of raising corporate tax from 12.5 per cent to 15 per cent, arguing it would hurt efforts to attract foreign investment and preserve Cyprus’ position as a business hub.
In a statement following a broad meeting at the Chamber of Trade and Industry, businesses, accountants, lawyers and investment promotion agencies, demanded an immediate end to any talk of raising corporate tax.
“The stability and predictability of the tax framework is a fundamental condition for maintaining Cyprus as a business centre, attracting investments and boosting Cypriot businesses so as to achieve high growth rates to the benefit of society as a whole,” the statement said.
The various organisations demanded the “immediate termination of any discussion regarding the particular issue and the express revocation of the ministry’s intention”.
The businesses said they were prepared to enter a dialogue aimed at coming up with a comprehensive tax reform without raising corporate tax.
“This reform must cut the operational cost of businesses, create the conditions for increased financial activity and development, boost employment, and the country’s competitiveness,” the statement said.
Finance Minister Harris Georgiades said there was no final decision on the matter and that it was just a scenario tabled for consultation.
“We operate in full transparency,” he told a morning radio show. “We had this meeting and I asked them to do an evaluation and come back with their views,” he said of businesses.
Georgiades stressed that the intention was not a bid to collect cash, nor an obligation Cyprus was forced to meet like it or not.
“We think it could be to our interest. Considering international developments on tax policy in the recent three to four years and how taxation issues have shaped up at an international level, we are of the view that a low corporate tax could be a disadvantage,” he said.
The minister said the government wanted the private sector’s view on the matter but if their view was that it would be bad then the scenario would not go ahead.
“Of course, our suggestion is to look a bit forward and not just at today,” Georgiades said. “Safeguard our competitive advantage but also try to create the conditions for a more sustainable development of the services sector.”
The minister said a low rate cancelled or limited double tax agreements, “which are one of the most important tools for growth and preservation of this important services sector”.
He said Cyprus has entered various black lists because of its low rate and a careful rise to 15 per cent would resolve such issues drastically.
Georgiades suggested that raising the tax could eventually be beneficial as the government planned to provide offsetting tax breaks.
Georgiades said the rise would fetch the state an extra €170m annually but at the same time it would be returning some €200m in the form of other tax breaks.
According to the scenario, the government will cut defence contributions from 17 per cent to 15 per cent, tax on interest rates from 30 per cent to 15 per cent, and capital gains tax from 20 per cent to 15 per cent.
It will also scrap an annual fee of €350 paid by every company, and stamp duties. According to the scenario, individuals will get a higher break on contributions to pensions, social insurance, and insurance.