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Cyprus

VAT amendment laws were unconstitutional

supreme court
The Supreme Court

The Supreme Court on Monday ruled two laws passed by parliament aiming to reduce the impact of increasing fuel costs to consumers were unconstitutional, as they violate the separation of powers.

Both laws were amendments to the VAT law, where for the first one, deputies voted through the non-imposition of VAT until the end of 2022 on the excise tax on petroleum products.

Effectively, it scrapped VAT for fuel consumption tax until the end of 2022.

The second contentious law implemented a zero VAT rate until the end of 2022, for the fuel price adjustment which is incorporated into electricity bills. This includes the percentage cost of purchasing greenhouse gas emission rights, the cost of purchasing fuel and the cost of maintaining strategic reserves.

Deputies had reasoned it was an attempt to alleviate the increasing fuel costs that consumers were paying, amid growing inflationary pressures and a higher cost of living.

The president had referred both laws to Supreme Court which on Monday ruled that deputies had infringed on the powers of the executive that regulate the flow of state revenues, and by extension its role in ensuring fiscal balance.

For both referrals, the Supreme Court sided with the attorney general’s position that fiscal policy and ensuring a balanced budget are matters determined by the executive branch, with the broader aim of implementing Cyprus’ legal commitments as a member of the European Union.

This is evident both from the nature of these powers and by the legislation surrounding the fiscal framework law, linked to EU directive 2011/85/EU, the court ruled.

Additionally, where the second law is concerned, Supreme Court specified that the VAT law of 2000 sets out Cabinet as the competent body to amend the sixth schedule. As a result, the law voted through by deputies “causes a clear violation of the competence of the executive power.”

 

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