New elements to try to continue the consultation with the Commission on the issue of VAT on first homes, will be collected by the Ministry of Finance as the reaction of the European Commission was negative to the proposal of the Republic of Cyprus to continue the existing arrangement for reduced VAT on first homes.
The issue was discussed today in the Finance Committee of Parliament with the parties calling on the ministry to continue the negotiation and achieve the reduced rate for the first 200 sqm and not the 140 sqm requested by the Commission.
Specifically, the current regulation provides for 5% VAT on the first 200 square meters for houses up to 275 square meters, while the European Commission is asking to limit VAT to 5% on the first 140 square meters for houses up to 200 square meters, as it does not serve social purposes.
It is noted that since July 2021 an infringement procedure was launched, i.e. the procedure to take Cyprus to the European Court of Justice to impose a fine.
Commission President Christiana Erotokritou, in her statements after the meeting, said that the Commission was informed by the Ministry of Finance about the consultation or renegotiation procedure requested by our country with the Commission on the issue of imposing reduced VAT for first homes. Until now, the reduced VAT rate of 5% applies to the first house up to 200 sq.m., provided that the house does not exceed 275 sq.m.
The information from the Ministry of Finance is that the Commission is negative to the differentiation of the new limits, namely 140 sq.m. with 200 sq.m. He said that the Finance Committee asked the Ministry to continue the consultation with the Commission and to provide further data to substantiate such as the Eurostat figure of 140 sq.m.m, do not correspond to the actual conditions prevailing in Cyprus and to add the fact that this social measure should be linked to a maximum amount of the purchase cost of the first house and take into account the new economic conditions prevailing in the world.
He said that the discussion will continue at the level of the Finance Committee and the Ministry is expected to be informed again by the Ministry about the next stages of consultation with the Commission.
AKEL MP Andreas Kavkalias said that we have been led to the current situation due to abuses by the government, in order to serve friends, best friends and confederates because of passports. As he said, due to the overflow of legislation we were led to the result of filthy rich investors buying apartments worth millions paying 5% VAT.
As Mr Kafkalias said, the information from the Ministry of Finance today exacerbates AKEL's concerns and worries since there was a rejection of the recommendation by the Commission. He added that AKEL requested that within a specific period of time, the government come back with the final views and positions on the final bill, while he recalled that AKEL submitted a proposal for a law from 2019, which combines square metres with the value of property.
Specifically, he said, it provided for the reduced VAT rate to be granted based on the value of the dwelling, to exempt villas and luxury homes from the reduced rate and to make eligible those who cannot afford to buy or build and wish to extend an existing home.
DIPA MP Alekos Tryfonidis said that it seems that the European Commission does not accept anything but transitional provisions and these should be of a specific duration which is not excessive and we have even been warned that the infringement procedure is underway.
He said that the Ministry of Finance has proposed to restore the pre-2016 framework but without specific maximum total market values, or maximum cost per square meter, or to benefit only those permanently residing in the Republic, as were the recommendations of the Finance Committee and as the Ministry of Finance informed the Committee, it will submit them in the near future after collecting additional relevant data.
"We reiterate our position that we do not agree with the Bill as it stands today and we certainly cannot vote for it."
"We reiterate our position that we do not agree with the Bill as it stands today and we certainly cannot vote for it."
"We reiterate our position that we do not agree with the Bill as it stands today and we certainly cannot vote for it. We will await the outcome of the new consultations between the Ministry of Finance and the European Commission's VAT Committee and will position ourselves accordingly with the final position on the contentious points that I have mentioned above, and with a view to genuinely helping young couples to acquire a home, and not to help others who are buying or building luxury houses and apartments, or apartments in the well-known luxury towers," he said.
On behalf of ELAM, MP Sotiris Ioannou expressed hope that the Ministry of Finance will present new arguments to bring back the previous regulation. He said that there is evidence submitted by the various professional groups to the Finance Committee and the Ministry of Finance that proves the fairness of the proposal submitted by Cyprus to the Commission. He expressed hope that the Ministry will counter these arguments to the Commission and we will return to the previous legislation.
MEP Stavros Papadouris said that the small positive step is that we may be able to secure a transitional period, while the big negative is that the Commission does not share Cyprus' concerns. He said that we misinformed the European Commission, which led us to the current situation and the process of examining the infringement of the Republic of Cyprus is underway.
"We have to be very careful what solution we give and what the final bill will be because it will be applicable for many years," he said, noting that we will not be able to go back and ask for changes from the EU.
"We have to be very careful what solution we give and what the final bill will be because it will be applicable for many years," he said, noting that we will not be able to go back and ask for changes from the EU.
Constantinos Konstantis, President of ETEC, said after the committee that the Chamber asked for the database to be looked at again to better document the government's proposal to the EU, so that the 140-200 sq. m. Otherwise, he said, there would be a serious problem in the construction industry and it would be a "stab in the dreams of many young couples to own their own home," noting that a whole generation would be asked to pay for mistakes made by previous generations.
He said they would continue to consult with the Ministry of Finance to even better document the proposal to increase the floor area and go to the 200-275 sqm that was in place before 2016. He also expressed optimism that there will be a positive outcome, describing it as a national objective to ensure a low VAT rate for young couples.
Source: CNA
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