Neophytou unveils ‘most radical’ tax reform

Presidential candidate Averof Neophytou on Monday unveiled his income tax proposal, dubbing it “the most radical reform ever in Cyprus” and claiming it would generate major savings for nearly 130,000 families.

The pitch came at a news conference in Nicosia, where Neophytou gave some examples from the ‘income tax calculator’, an online tool available on the candidate’s website at https://averof.cy/tax-calculator/.

“This is the Cyprus we want to create, ” he said. “Believe us, because we know how to handle the tax tool in order to tackle social inequalities, giving dignity to each and every family.”

“Our aim is to have autonomous people, dignity in the family, more disposable income. We are here to build a better Cyprus, having already laid robust foundations for the economy.”

Under the proposal, people would file their tax returns as a household rather than as individuals, as is the case now.

This single change would ostensibly benefit 126,000 households.

Neophytou then proceeded to give some ‘real-life’ examples of how the new system would work, by referring to colleagues of his in the room.

The first example he gave was of a person with a €43,000 income, a spouse with a €35,000 income, and with one child. Today the two adults pay a combined €9,235 in taxes, while with the household system they’d pay just €4,485.

In the second example, one adult has a €40,000 income, the spouse a €42,000 income, and they have two children. They now pay €10,370 in taxes, but under the new system this would drop to €2,900.

“Let’s look at a third example. Demetris, you have three children I think. You make €40,000, your wife earns around €21,000, and there are three dependents. Today you’re paying €5,185, while with the family system you will pay zero.”

By entering one’s info into the online tax tool, one can calculate the savings his or her family would generate – the difference between what they pay today and what they’d pay with the proposed system.

If a person has a spouse, that household is credited with half a unit – that is to say, the current taxable income payable would be divided by 1.5. One child gives another half a unit, a second child another half.

A third child would give one additional whole unit, and the same would go for a fourth child. Finally, any disabled person would each generate an additional whole unit.

For instance, in a family of two adults, filing a household tax return would generate a benefit of half a unit, meaning the current taxable income would be divided by 1.5. If the spouse happens to be a disabled person, another unit is added, and the current taxable income is divided by 2.5.

In the Q&A session, a journalist asked whether the proposed system factors in deductions for insurance policies or donations to charitable institutions. Neophytou said yes.

“If you noticed, we are talking about taxable income. What is the definition of taxable income? It is gross income minus social insurance contributions, Gesy, deductions if you have life or health insurance, deductions for donations to charities or NGOs, but where all these deductions do not exceed one-fifth of the taxable income.

“So when we say taxable income, we are talking about the gross income after the deductions you have mentioned.”

On whether his team have calculated how much tax revenue his proposal would deprive the state, Neophytou asserted that in fact the end-result would benefit state coffers.

“The simplistic approach that by cutting taxes you reduce revenues, is a very shallow analysis. Because all these 126,000 households who will benefit, will have more disposable income and use it to support the family. They won’t go for savings, and so the multiplier effect on the economy from supporting the family, and the benefit to public finances, will be more than the apparent decline in [tax revenue].”

Moreover, Neophytou went on, income tax comprises but a fraction of state revenue.

“The state has a budget of around €8 billion to €8.5 billion for 2023. But do you know how much revenue is generated from personal taxation? Not more than €710 million, and we are speaking about 2022. Meanwhile our surplus for 2022-2023 comes close to €1 billion. So even in the extreme scenario of zero income tax revenue, the budget would still post a surplus.”

In closing, Neophytou pointed out that under the proposed system people will be able to choose being taxed as an individual or as a household.