Additional cut to VAT on electricity bills for three months

The government has notified the EU of its intention to cut VAT on household electricity bills from 19 per cent to 9 per cent for three months, Finance Minister Constantinos Petrides said on Thursday.

“We think the measure is in line with the European Commission’s toolbox and recommendations to tackle the rise in prices, which refer to the adoption of temporary and targeted measures that will prevent the danger of energy poverty and will not affect the market,” Petrides said.

The minister urged parliament avoid tabling proposals that have a huge impact on public finances, especially when they affect state revenues and expenditures on a permanent basis and without being targeted.

Petrides was referring to a proposal backed by opposition parties to cut VAT on electricity bills to 9 per cent across the board.

“I believe we all agree that protection of public finances must be everyone’s primary objective, since, as it was proven during the pandemic crisis, the state’s revenues are the ones that support vulnerable groups and workers at the time of crisis,” he said.

Citing Eurostat, the minister said, Cyprus raised its social protection expenditure by 18 per cent in 2020, the third highest increase in the EU.

The cut of VAT to 9 per cent is over and above previous decisions by the EAC to cut bills by 10 per cent across the board until February and reducing VAT on bills to vulnerable groups to 5 per cent for six months. The latter would benefit around 34,000 households.

Petrides said, temporary measures aim at alleviating the impact of the rise of electricity prices in the short-term.

“We must note that gradually, and as part of the green transition, what we should be aiming at is saving energy and cutting dependence on fossil fuels. Green tax reform after all, will lead to a further rise in the price of fossil fuel in the immediate future,” Petrides said.