Debate intensifies over impact on households and businesses

The Finance Ministry on Monday announced that the public consultation on the package of bills concerning the planned tax reform has been extended.

In a post on social media platform X, the ministry said that the consultation period, which was due to conclude on August 25, 2025, will now continue until September 10, 2025.

According to the announcement, the decision was taken following requests from interested stakeholders, in order to allow more time for the submission of views and proposals.

The extension marks the latest development in an ongoing debate that has already drawn strong reactions from financial institutions, professional bodies, economists, and the wider public.

Previous developments on tax reform

On August 11, the Cyprus Stock Exchange Council expressed what it called “deep concern and disappointment” over the absence of substantial incentives for the capital market in the government’s proposed tax reform.

The exchange stressed that the reform represents a missed opportunity to strengthen company listings, attract new investment, and support economic growth.

Instead, it argued that the draft provisions weaken existing incentives and limit the exchange’s role at a time when its privatisation process is under way.

It urged the government and parliament to reconsider and to include measures aligning with international practices that support capital markets.

On July 22, the government announced that payments linked to early or voluntary retirement schemes will be subject to income tax under the reform package.

Until now, such schemes, particularly in banks and semi-governmental organisations, allowed employees to receive generous tax-free exit packages.

Under the draft law, all employment-related payments, whether in cash or kind, would become taxable, although the first 20 per cent of early retirement compensation would remain exempt.

Exceptions would continue for civil servants and payouts from pension or provident funds covered by collective agreements. Unions had previously resisted similar proposals.

Also in July, Les Manison, a former senior economist at the International Monetary Fund, an ex-advisor in the Cyprus finance ministry and a former senior advisor at the Central Bank of Cyprus, also voiced his concerns with the tax reform.

Manison argued that while president Nikos Christodoulides has promoted the reform as a way to reduce burdens on families and modernise the economy, the measures in practice favour corporations, foreign professionals and wealthy property owners.

He warned that the reform risks worsening income and wealth inequality by offering minimal relief for households, while keeping progressive taxation weak.

Moreover, he criticised the limited adjustment of the tax-free threshold and the failure to index income tax brackets to inflation, noting that many EU countries do so.

Manison also highlighted the absence of stronger taxation on property and inheritance, arguing that the wealthy will continue to benefit disproportionately.

He ultimately explained that the reform would entrench Cyprus’ low-wage, low-productivity economy unless progressive taxation and incentives for innovation and entrepreneurship were introduced.

In early May, the Institute of Certified Public Accountants of Cyprus (Selk) reiterated its call for a fairer and more effective tax system during a meeting with Akel leader Stefanos Stefanou.

The organisation emphasised the need for reform that strengthens entrepreneurship and ensures social justice.

According to Selk, the discussion signalled the start of closer collaboration with Akel on economic issues.

At the time, Stefanou reaffirmed his party’s commitment to supporting middle and lower-income groups through tax reform and stressed the importance of combating tax evasion while strengthening fairness.

Finally, in March of this year, the 8th Cyprus International Tax Conference opened with debates on reforming the tax system and digitalising tax administration.

Institute of Certified Public Accountants of Cyprus general manager Kyriakos Iordanou said the current plan marked the long-awaited beginning of stakeholder dialogue.

Tax commissioner Sotiris Markides described steps taken since 2022 to improve compliance, clear backlogs and return over €1 billion to businesses, with further improvements expected through the Tax For All digital platform.

Additionally, Selk president Nikos Chimarides underlined Cyprus’ competitiveness but cautioned against raising corporate tax from 12.5 per cent to 15 per cent.

Finally, speakers agreed that reform is vital to achieving long-term growth and aligning with Vision 2035.