Had the citizenship by investment scheme not been in place then Cyprus would have lost even more at a time when the Cypriot economy was collapsing, according to Finance Minister Constantinos Petrides.

Petrides, speaking to Sigma television on Monday, asserted that the reduced VAT on homes was based on a policy supported by the House of Representatives to boost the economy and the construction sector and benefit the wealthy middle class.

“We may have lost €200 million from the Cyprus investment programme benefitting foreigners but also lost €300 or €400 million from Cypriots, the wealthy middle class who were building their houses,” Petrides said.

“Based on the policy choice the public lost monies…in an effort to boost economic growth and the construction industry and benefit the middle class…It was a policy not in the wrong direction,” Petrides added.

Last week the auditor general’s report into the issue flagged the island had lost €200 million due to the law granting reduced VATs on the housing market that investors participating in the citizenship by investment scheme benefitted from.

The Audit Office report contained the findings of a probe into 3,517 cases of individuals who acquired citizenship as investors, but stressed insufficient information was provided by the interior ministry to the cabinet and parliament.

The Audit Office stressed that these missteps cost millions in public funds, “among other things from the illegal use of the reduced VAT rate and the illegal naturalisation of the thousands of people who were given Cypriot citizenship as members of the investors’

Referring to the implementation of the VAT law, Petrides said that no misdeeds took place, and that the auditor chief is spreading misinformation based on a misinterpretation of the law.

“The law states it clearly. The law that the House unanimously voted. Whether you are a Cypriot national, or a third country national, or a European national, and you purchase a residency in Cyprus and you declare it as your permanent residency in Cyprus, then the first 200 square metres are exempted from the 19 per cent VAT and the 5 per cent applies,” Petrides said.

In response to Petrides, the auditor-general Odysseas Michaelides also speaking to Sigma television on Monday, branded the government’s positions as irrational, alleging in his turn that it is the government and the tax department who are in fact misinterpreting the law and the EU directive.

“The law entailed that they who would benefit from this privilege [reduced VAT] must present a permanent residence [in Cyprus]. And to prove permanence, they must present the tax department with utility bills and any other evidence proving the beneficiary is using said residency as a main and permanent residence,” Michaelides said.

“Now, the government is saying that [Malaysian fugitive] Jho Law for example, who never stepped foot in Cyprus, could assert that Cyprus is his main and permanent place of residence…the citizens can judge whether this position is rational or not…we say that it firstly has no relation to rationality, and secondly we say that it is in clash with the EU directive,” he added.

Former finance minister Haris Georgiades on Monday for his part had rubbished claims that Cyprus had lost millions through the implementation of the citizenship by investment programme, branding the issue as “non existent”.

Speaking on CyBC radio, Georgiades, also the deputy leader of Disy, explained that the law allows for non-Cypriot and non-European citizens to benefit from reduced VAT in the housing market and was voted by the House unanimously in 2012 during the previous government and entailed no provision or condition for a minimum stay in the republic.

It does have a condition though: while residing in Cyprus those who got the VAT discount must reside in the home to which it applied, not somewhere else. They are also not allowed to rent the property to third parties, Georgiades said.

But Green Party MP Stavros Papadouris said his party had voted against as it was against an EU directive that referred to a social measure rather than aid towards big investors.

Government spokesman Marios Pelekanos said that the auditor chief’s report added nothing new in relation to the Nikolatos findings aside from the issue of VAT.

Pelekanos also added that the government only implemented a law voted in by the House.