EU Commission gives thumbs-down to proposed VAT cut

The European Commission disagreed with parliament’s compromise proposal over reduced VAT on homes, deputies at the House finance committee heard on Monday, amid an impending deadline just over a week from now.

Speaking to deputies during the House finance committee, permanent secretary at the finance minister George Panteli told MPs the EU Commission was not convinced the latest proposal was targeting social elements.

Deputies had previously suggested not having a minimum threshold of the property area, with the commission reverting back to set a limit of 110 square metres.

With Brussels already initiating infringement proceedings against Cyprus – but has not yet issued a reasoned opinion – MPs have until June 8 to pass the bill into law.

Chairwoman of the committee and Diko MP Christiana Erotokritou told deputies they have two options: either to revert to the original bill the government submitted, or prepare a different formula based on discussions with the commission’s tax directorate.

Lawmakers will hold an extraordinary session on Thursday to discuss this further.

Last week the House finance committee agreed to a deal providing for the abolition the distinction between apartments and houses, while imposing a reduced VAT at five per cent for the first 190 square meters for properties valued up to €350,000.

They had also agreed that property worth up to €475,000 with an area up to 190 square meters, would have reduced VAT for the first €350,000, and the remaining €125,000 would be taxed with a 19 per cent VAT.

According to Panteli, the EU Commission concluded that there should be a threshold of 110 square metres – in contrast to the parliamentary suggestion of 190 square metres.

“Whether in its initial form in the way it was submitted or with any amendments, it must be put before plenum on June 8, the date will not change,” Erotokritou said.

Panteli also specified that the commission is set to send a second letter to Cyprus in June, giving it two months to respond with legal arguments, over the infringement proceedings. The next stage is to go before the EU Court by September or October.

Should lawmakers manage to get new legislation voted through, this will be evaluated by the Commission and if it believes it does not comply with the acquis Communautaire will reopen the infringement procedure.

Erotokritou said they are exerting all efforts to stop proceedings against Cyprus, which is paying for the “sins of the past” and also create a legal framework that encompasses as many citizens of the middle class as possible, as well as young couples vying to get their own home.