Our View: We cannot keep cheating the EU over VAT on homes

When the legislature approved by overwhelming majority, the reduced VAT for the purchase of primary residences in 2016, deputies claimed they were assisting the less-off and young families buy a home. The lower VAT (reduced from 19 to 5 per cent) was for houses with an area of up to 200 square metres, which was rather generous.

Of course, the system was abused, with any house/apartment sale, regardless of its size and value being charged 5 per cent VAT for the first 200 square metres and 19 per cent only for the remaining area. This did not only benefit low-income or young families, but also the very wealthy and the foreign nationals investing in property for citizenship.

As the auditor-general pointed out, someone buying a ‘primary’ residence worth €2 million, could end up paying €70,000 VAT instead of €260,000 thanks to discount. The law some deputies admitted also helped developers sell properties. Lawmakers had fooled the European Commission, because the VAT reduction was not a social measure, designed to help the low-income families.

Cyprus was reported to the European Commission for this and is now at risk, according to finance minister Constantinos Petrides, of being ordered to return money for mistaken implementation of the directive on VAT. In an attempt to fix things, the government has tabled a new bill, by which the 5 per cent VAT would apply only to primary residences of an area of up to 140 square metres.

Deputies were up in arms at Monday’s House finance committee that discussed the bill, insisting that the area for lower VAT should not be reduced. The Commission had come up up with the 140 square metres based on Eurostat figures that the average size of a residence in Cyprus was 141 square metres, but some parties would not agree to the reduction. Diko insisted it would vote against the bill, because “it victimises thousands of Cypriot citizens and young couples.”

Nobody, however, complained about the reduced VAT law, which was intended as a social measure, benefiting wealthy foreigners and developers, while depriving the state of revenue. Now that we have been found out by the European Commission, it would be grossly irresponsible to try to fool it again. There have been claims that the Commission had been kept in the dark by Tax Department about the 2016 law.

It is all very embarrassing for Cyprus. It seems everyone is working – legislature, state officials, the executive, at undermining the country’s trustworthiness in Brussels. The sad thing is that even after our disregard for EU directives is exposed, we still refuse to put things right.