Supreme Court deems VAT reduction unconstitutional

The full bench of the Supreme Court on Wednesday decided the law on reducing VAT for electricity is unconstitutional, as it violates the separation of powers.

According to the decision, parliament’s move to legislate a reduction of VAT for electricity “interferes with the authority of the executive,” which is the body that can determine which transactions will be subject to reduced VAT.

The law – tabled by opposition – had been voted through parliament on December 3, 2021. It cut VAT on electricity bills from 19 per cent to 9 per cent across the board for an indefinite period. Following the advice of the attorney general who opined it violated the separation of powers, President Nicos Anastasiades sent the law back to parliament.

A Legal Service representative told MPs that the president had vetoed the bill because it violated European law and the separation of powers. It also derailed the state’s fiscal planning by depriving it of €75 million annually, without setting a time limit.

Nonetheless, parliament rejected the referral, leaving the only available option to the Supreme Court to make a decision.

The full bench of the Supreme Court agreed with the attorney-general’s position, specifying cabinet should be the one to decide which exchanges can be subject to reduced VAT.

The authority should be kept within the confines of the executive power, as the finance ministry is the responsible body on negotiating with the VAT committee on an EU level, and evaluating the financial impact of changing VAT on state coffers.

“Only the executive can carry out this evaluation as it ensures VAT collection.” This tax is also collected by other EU member states and is a resource for the EU, the decision concluded.

Finance Minister Constantinos Petrides had urged opposition parties to 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.

In November last year, cabinet approved a reduction of VAT from 19 per cent to 5 per cent on electricity bills for vulnerable groups for six months.