The Minister of Finance, who responds in relation to the allegations of VAT revenue loss due to Cyprus Investment Programme (CIP).
In a written statement, Constantinos Petrides, among other things, refers to the hypocrisy of the political system.
He stresses that both the government and himself personally have admitted weaknesses, gaps and shortcomings of the CDC. But, he stresses, the attempt to politically exploit provisions of the Programme, two years after its abolition, provisions that were well known and accepted throughout the years of its implementation, such as the imposition of a reduced VAT rate and the naturalisation of relatives or managers of major projects worth hundreds of millions of euros (even though they may not have been done on the correct legal basis) is nothing but political hypocrisy".
The Ministry of Finance's statement:
"The hypocrisy of our political system in all its glory:
With regard to the public debate that has been going on in recent days, on the occasion of the Auditor General's report, I clarify the following:
- In 2016, and while the CCP was in full implementation with its financial terms of operation well known, the House of Representatives, with its own proposal for a law which is still in force today, citing the European Directive which allows a reduced VAT rate for the acquisition of housing for "social purposes" and without any government initiative, decided to impose a reduced rate from 19% to 5% on the first 200 t.m. of a dwelling used as a permanent residence and place of residence in the Republic. The Proposed Law was passed UNANIMOUSLY (except for the Ecologists) without any mention or even consideration of an exemption in the CCP.
- This legislation made eligible ALL those who declared the residence as their main and permanent residence in the Republic WITHOUT ANY EXCEPTION. Regardless of socio-economic data, income, size or value of the residence, or whether the purchase was made under the CCP. In particular, when the Bill was passed by the House of Representatives in 2016 there was a clear statement from an opposition party MP who said : "We are conscious that by passing what we are passing, we will get rid of taxes and palaces. That is what will happen. And palaces of five hundred square metres of super luxury. This is what will happen!!!"
- The implementation of this legislation has benefited both Cypriot citizens (wealthy and middle class) and European and third country citizens (including naturalized citizens), as well as land development entrepreneurs.
- VAT on the residences of naturalized citizens if it was their permanent residence and place of residence in the Republic was imposed, correctly, based on the provisions of the legislation passed by the House of Representatives in 2016. There was no loss of revenue from the implementation of the legislation. Loss of revenue, much more than what the Auditor General alleges, may have resulted from the change in the legislation which was a political decision by the House of Representatives, which is outside the scope of the Auditor General's audit.
- Regarding the position of the AG that, the Department of Taxation should not have granted the reduced VAT rate for applications for exceptional naturalizations, the Department applied and applied the 2016 Law to any citizen of Cyprus or another state who used the residence as a permanent place of residence in the Republic. The CCP made it a condition that the applicant must own and occupy a permanent residence in the Republic of Cyprus and distinguished between the purchase of a permanent residence and an investment in residential units. The reduced VAT rate of 5% was granted to naturalised persons as well as to any Cypriot citizen on the basis of a declaration that the residence is used as a principal and permanent place of residence in the Republic. Once the residence is completed and the applicant is settled, only then can the applicant's initial declaration be verified by the Tax Department. If during the re-audit it is found that the residence was rented or used for purposes other than owner-occupation, as provided for in the VAT legislation, then, as for any other applicant, VAT is recovered. Already the Ministry of Finance has requested and received since last August (2021) from providers a significant number of applications that have taken advantage of the reduced VAT rate and has forwarded the data to the Department of Taxation for reassessment. The Tax Department is already carrying out the relevant checks and where it is found that the applicant is not a beneficiary, the VAT amount is recovered and the case will be forwarded to the Ministry of Finance for its own action, as has already happened in some cases.
- In 2021, following an intervention by an opposition MEP, (and party that voted for the 2016 legislation), on the implementation of the European VAT Directive concerning the application of the reduced rate of 5% in Cyprus, he made a report to the CCP for political expediency. The European Commission, making explicit reference to the complaint and the 2016 Law, initiated an infringement procedure against Cyprus which is ongoing. The reference by the Auditor General and political parties to "wealthy citizens" refers to their political decision to vote for the Law in question and not to the provisions of the CCP.
- After consultation with the ETEC and other stakeholders, the Ministry of Finance submitted a Bill to the House of Representatives, which is in line with the acquis communautaire on VAT and aims to bring the Republic of Cyprus into compliance with an infringement letter sent by the EU. This bill establishes, on the basis of statistical data, a specific floor area of dwellings that can benefit, and adopts favourable provisions for disabled persons. In other words, the submitted bill introduces criteria that give the measure a social character. There is no doubt that this new bill will also affect middle-class Cypriots, whom the Commission does not consider to be covered by the strict provisions of the European VAT Directive for 'social purposes'.
- Unfortunately, since the tabling of the bill last January, the House of Representatives, under various pretexts, such as allegedly depriving young couples of the right and the hit to the construction industry, has not proceeded to promote and vote on the bill in question.
- The bill, which repeals the previous regime, which has been abused as documented by the GM in his report, has yet to be passed by the House of Representatives unlike the 2016 legislation that created the abuse and was passed with great ease.
Both the Government and I personally have admitted weaknesses, gaps and shortcomings of the CCP, a Program that was implemented and helped at a particularly critical time when the economy and the banking system were in danger of collapse. We have addressed these shortcomings by taking continuous corrective measures, such as strengthening due diligence controls, which is also highlighted in the Nicolatos Commission's findings. However, the attempt to politically exploit provisions of the Programme, two years after its abolition, provisions that were well known and accepted throughout the years of its implementation, such as the imposition of a reduced VAT rate and the naturalisation of relatives or managers of major projects worth hundreds of millions of euros (even though they may not have been done on the correct legal basis) is nothing but political hypocrisy."
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