The government bill to impose a reduced VAT rate of 5% for dwellings with a maximum area of 140 square meters (instead of the current 200 square meters) was discussed today in the Parliamentary Finance Committee, with many members calling for a renegotiation of its provisions, the introduction of transitional provisions and the introduction of criteria other than area.
Many of the members linked it to the termination of the Cypriot investment programme, with Committee Chairwoman, Christiana Erotokritou, stating that "after the golden passport party, the bill will be paid by the middle class and young couples".
According to a spokesperson for the Ministry of Finance, the bill was tabled after an EU warning letter dated 15 September 2021, and failure to comply with the VAT directive could lead the Republic to the European Court of Justice.
According to the Commission's letter, the reduced VAT rate of 5% violates the acquis communautaire because there are no conditions justifying the social character of the measure, all citizens of the Republic, the EU and third countries benefit from the measure regardless of their income and assets, the financial situation of the beneficiary, their family members and the maximum total floor area of dwellings, which according to 2011 data from Eurostat in Cyprus is 141 square meters.
MPs expressed concern about the horizontal nature of the measure and that no transitional provisions are set in order not to negatively affect those who have made plans to acquire a home, while all professional bodies expressed concerns about both the impact of the bill on citizens, the market and the economy at large.
The Audit Office, through a representative, expressed concern about the passing of the bill without a cap on value and without social criteria.
"A wealthy citizen buys a 200 sqm apartment for €2 million and for the first 140 sqm instead of paying VAT of €266,000 he will pay VAT of only €70,000. Is this social policy?For us it certainly is not," he said, adding that a provision should be introduced in the law setting a ceiling on value and not just a ceiling on area.
A spokesman for the ETUC told the committee that the increases that will be introduced "are likely to be the gravestone for the dreams of many to own their own home."
A spokesman for the ETUC told the committee that the increases are "likely to be the gravestone for the dreams of many to own their own home.
He said a 200 sqm house before the pandemic could cost around €300,0000 today there is a 15% increase in materials, which means it costs €360,000 and if 19% VAT is applied to the whole house the price will rise to €460,000. He recommended that we return to the 2016 scheme.
A representative of the Architects Association said that the data taken to set the floor area at 140 sq.m. came from the 2011 census, while the average in Cyprus was 205 sq.m.m will not help families to get a house, we will send them to apartments," he said.
For its part, the KEBE reiterated the same concerns, but also pointed out the timing of the bill's submission, adding that in Portugal there is a zero rate for first homes. He recommended the withdrawal of the bill.
On behalf of DISY Deputy President Harris Georgiades said that EU membership has not only benefits but also obligations. He also reminded that VAT is a European tax, while he pointed out that different obligations have the states that joined the EU from 2004 onwards, rather than the older member states.
He noted that in 2016 the Parliament had unanimously approved the law and added that if there has been correspondence with the European Commission since then, the executive is also responsible. He asked for the correspondence to be filed, adding that DISY was open to the issue of the transition period and the introduction of criteria, and described as serious the point about reviewing the 140 sq.m. limit
The President asked the Ministry of Finance to inform whether there had been correspondence before the warning letter was received, and questioned whether the Ministry of Finance had not negotiated with the Commission. She also asked whether there was scope for introducing a transition period or other changes.
The spokeswoman for the Ministry of Finance said that the warning letter had been answered by the Tax Commissioner, who provided information on what is in place regarding the reduced collector, and noted that it is not realistic to ask for an extension as Cyprus is overdue. She described it as reasonable to introduce a provision based on the value per sq.m.
"It is an unmanageable measure, which comes, not to correct pathologies, but to cover the party that has been going on all these years, resulting today in the bill being passed on to the next generation, the middle class and young couples," said Mrs. She said that we need to bring before Parliament a balanced legislation and there is no balanced legislation that allows a multimillionaire to buy a €10 million 140 sq. m. apartment.m and pay 5% VAT and for a young couple to buy a 150 m2 apartment and pay more.
On behalf of AKEL, Aristos Damianou said his party had tabled a relevant law proposal since 2019, "which, on the one hand, aimed to prevent interference with all those who were building glass towers to sell golden passports and, on the other hand, meet the criterion of social sensitivity for all those young couples and Cypriot citizens in general who wanted to buy a house to house their family but the party that was going on made the dream unrealised."
"That is why we will stick to our proposal, which is targeted, which refers to height per square metre, but also puts a cap on property values, because a property can be 80 square metres, but when that property is an apartment in the towers, you understand the value will be 2, 3 and 4 million," he said.
On behalf of ELAM, Sotiris Ioannou said that with the bill, young people's dream of acquiring a home will remain just a dream and what will be feasible will be the acquisition of an apartment
The EDF MP, Elias Myrianthous said that the party disagrees with the philosophy of the bill and added that the bill should be rewritten and renegotiated with Brussels and any new legislation should include a transition period.
PPP MP Alekos Tryfonidis said that PPP has many concerns and reservations about the bill and called on the Finance Minister to renegotiate the provisions of the bill with Brussels. He also asked for the Minister of Finance to attend the next discussion of the issue in the Committee. "We are talking about a major political and economic issue and omissions were highlighted in the discussion, so we have reached the point we are at," he added.
Finally, Ecologists MP Stavros Papadouris said that the bill has several economic but more social implications. "It is an opportunity to finally find the right formula to help households on the housing issue, not to subsidize big mansions that do not need any help," he concluded.
Source: CNA
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