Our View: MPs have a nerve criticising government for VAT law

Is it collective superficiality or a general inability to think anything through that led the executive and legislature to implement a law that provided for a discount on VAT for the first 200 square metres of a property that was purchased, regardless of its total area and value. Or perhaps this was another attempt to fool Brussels, our politicians calculating that the European Commission would not notice that the Republic’s law went completely against the spirit of the EU directive on which it was based.

The directive allowed a reduction of VAT for social policy objectives, such as affordable housing for first-time buyers. In Cyprus VAT was lowered from 19 to five per cent for the first 200 square metres of all properties bought as homes, which was not a social policy but a general discount for all house-buyers, including the very rich, who needed no state support to buy a property. Someone buying a one million euro house of 500 or 700 square metres paid the reduced VAT on the first 200 square metres, which was sizeable discount.

Deputies who approved this law in 2016 had no qualms about it and ignored amendments submitted by the government, which had been warned that the Commission would take measures against it for failure to comply with EU rules on VAT at the start of this year. Opposition parties refused to do anything, while the government submitted a new set of amendment proposals in June. This is only being discussed now.

Not surprisingly, deputies were up in arms when they read the audit office’s report on the citizenship by investment scheme, which claimed the state had lost €200 million in VAT revenue, because the VAT law also benefited investors buying houses and flats in Cyprus. They had the nerve to criticise the government for this loss of revenue, caused by a law they had approved and which benefited not only foreign investors, but also wealthy locals.

This abuse of the EU directive also benefited developers, who could sell more properties with the VAT discount. An Akel deputy openly opposed the government’s amendments on the grounds that these would affect the developers and the construction industry. Helping the construction industry was one of the main objectives of the reduced VAT ‘social policy’ of the parties. At Monday’s House finance committee, the Cyprus Chamber of Commerce made no secret of this, in proposing that properties valued up to €500,000 (instead of the proposed €350,000) should be eligible for VAT discounts.

From the start, the VAT reduction for every property buyer was aimed primarily at helping the construction industry and developers. It also helped the economy, but that is unlikely to be accepted as a defence for the Republic by the Commission.