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- Ελληνικά
Further to an announcement by the Ministry of Finance dated. 22.3.2024, in which it states that it intends to continue the payment to former officials of this allowance for the employment of a private secretary, on the same basis as it has been paid to date, we note the following:
1. Legal framework of the benefit for the employment of a private secretary by former officials
(a) The benefit granted to retired former Presidents of the Republic (President of the Republic) and former Speakers of the House of Representatives (Speaker of the House of Representatives) was first introduced by the Benefits (President and Vice-President of the Republic, President and Vice-President of the House of Representatives) Law of 1988 (131/1988), when Mak. Spiros Kyprianou.
The relevant article was as follows:
"The President and Vice-President of the Republic and the Speaker and Vice-President of the House of Representatives shall be granted, upon leaving office, an allowance for the employment of a private secretary, which shall be equal to the highest step of the 1st class Stenographer's salary scale and the applicable index allowance.
It is understood that the allowance referred to in paragraph (a) shall not be paid in the event and for as long as the former President and Vice-President of the Republic and the former President and Vice-President of the House of Representatives choose to use the services of a civil servant under special arrangements."
(b) In 2014, Law 131/1988 was replaced by the Provision of Certain Benefits to Specified Beneficiaries in the State Sector and the Wider Public Sector (Terms and Procedure) Law (Law 3(I)/2014). The wording of the relevant provision remained substantially the same.
(c) The appropriation for the above expenditure is included in the budget of the Ministry of Finance, Expenditure Group 04000 - Domestic Transfers, Expenditure Subgroup 04120 - Other Domestic Transfers, Article 04133.2 "Benefits to Certain Officials of the Republic."
The following explanation is given in the Budget Memorandum:
"Allowance for the employment of a private secretary. In the event and for so long as such former officials choose to use the services of a civil servant under special arrangements, the allowance shall not be paid."
(d) In the Income Tax Act of 2002 (Act No. 118(I)/2002), as originally enacted in 2002, the following exemptions, among others, were included in Article 8:
"8. Exempt from tax-
(1) the official emoluments of the President of the Republic or the official performing the function of the President of the Republic in his absence;
(2) the pension granted to the President of the Republic upon his retirement from that function, in accordance with the provisions of the Pensions (Certain Officers of the Republic) Acts 1980 to 1996;
(3) the part of the pension granted to the Speaker of the House of Representatives on his retirement from office, under the provisions of the Pensions (Certain Officers of the Republic) Laws of 1980 to 1996, calculated on the basis of the attendance allowance;
(4) any other benefit or allowance granted to the President of the Republic and the Speaker of the House of Representatives on retirement from office under the Benefits (President and Vice President of the Republic, President and Vice Speaker of the House of Representatives) Laws;
(4) any other benefit or allowance granted to the President of the Republic and the Speaker of the House of Representatives on retirement from office under the provisions of the Pensions (President and Vice President of the Republic, President and Vice Speaker of the House of Representatives) Laws Laws of 1988 to 1989;"
Subsections (1), (2) and (3) were deleted, as a measure due to the then economic crisis, by the Income Tax (Amendment) Act (L. 116(I)/2011) of 2011;"
Subsections (1), (2) and (3) were deleted by the Income Tax (Amendment) Act (L. 116(I)/2011) of 2011. 31.8.2011.
Subsection (4) remained intact and is still in force today. It is clear that the grant of an allowance for employment of a private secretary was not considered and is not considered as income, but some benefit which leaves no pecuniary gain to the former officer, hence it alone is not taxable
2. Legal framework for the flat-rate secretarial allowance granted to Members of Parliament
(a) The so-called "flat-rate secretarial allowance" granted to Members of Parliament was introduced in 1995 by the Ministers and the Speaker, Deputy Speaker and Members of the House of Representatives (Compensation) (Amendment) Act (L. 79(I)/1995), which amended the basic Act No. 22/1960.
(b) Specifically, the Act, which was further amended in 2005, provides as follows. The remuneration of Members of the House of Representatives shall consist of:
(a)(i) Annual remuneration of twelve thousand pounds (£12.(twelve hundred thousand) adjusted as a result of the fluctuation in the index of the index of prices and the annual rate of increase in the wages and salaries of employees from time to time after the commencement of this Act, according to official data from the Department of Statistics and Research"
(ii) an amount equal to one-twelfth (1/12) of the respective annual remuneration paid under sub-paragraph (i), to be paid at the end of each year;
(b) an annual performance allowance of twelve thousand pounds (£12.000) adjusted as a result of any fluctuation in the index; and
[C](c) an annual lump sum of seven thousand two hundred pounds (£7,200) for secretarial services."
(c) The appropriation for the above expenditure is included in the budget of the House of Representatives, Expenditure Group 02000 - Officials of the Republic, Expenditure Sub-Group 02060 - Other Officials' Allowances, Article 02061 'Allowance for Secretarial Services'."
[D] The flat rate allowance for secretarial services is taxable and pensionable and obviously forms part of the remuneration of the Member of Parliament. Hence our long-standing recommendation that this allowance be incorporated into the salary of Members of Parliament.
3. Comparison of the two allowances
From the data in paragraphs 1 and 2 above, it is clear that the allowance granted to former government officials is for the employment of a private secretary, is not income, is not taxable and is not pensionable, whereas the allowance granted to Members of Parliament is a flat rate allowance for secretarial services, is income, is pensionable and is taxable.
4. The handling of the matter by the Ministry of Finance
(a) As stated in a Special Report of our Service dated. 24.3.2017, as per information then received from the Ministry of Finance, the private secretary allowance was being provided without the Ministry then possessing any data/information regarding the employment or non-employment of private secretary by the officers. In fact, the Ministry had informed us that it considered that the allowance in question was covered by the Law on the Reduction of Remuneration and Pensions of Officials, Employees and Pensioners of the State Service and the Wider Public Sector (Law 168(I)/2012) and had incorporated the allowance into the salaries and pensions of the officials. We note that under the said Law 168(I)/2012, the incomes reduced include the lump sum allowances for performance, hospitality and secretarial services. However, the allowance for the employment of a private secretary in question is not a flat-rate allowance. 23.3.2017, the then Director General of Finance had agreed with our position that benefits which are granted to certain officers for a specific purpose, such as secretarial allowance, should be paid on production of necessary supporting evidence and in no case should the allowance paid exceed the actual cost.
[C] The fact that the Council of Ministers decided on 3.10.2018 to continue paying the said allowance without providing any supporting evidence does not alter the provisions of the legislation, nor does it legitimize the practice followed until then, since, as is well known, the decisions of the Council of Ministers follow the provisions of the legislation.
[D] By letter dated 3.10.2018. 17.1.2024, the Director General of the Ministry of Finance informed us as follows. We are not in a position to know the remuneration of the private secretaries employed, as such records are not kept by the Treasury in respect of these individuals, who are not civil servants."
(e) The Treasury's response above clearly suggests that the Department recognises that the allowance in question is only granted where former officials employ a person as a private secretary. Indeed, it is reasonable to conclude that it would not be acceptable to the Treasury for a former official to employ a person as a private secretary and pay her a salary of one euro. Today's (26.3.2024) statements by the Finance Minister on state radio are consistent with the above. The fact that the Ministry of Finance (wrongly) did not request further information until today, does not change the facts.
(f) However, based on the aforementioned statement of the Ministry of Finance dated 26.2024.2024, the Ministry of Finance did not request further information until today. 22.3.2024, the Ministry of Finance is treating the allowance as being the income of the former officer, without regard to whether or not the former officer employs the declared person and without regard to the amount of the salary of that person. Indeed, as we have found, the Treasury Department, for the four former officials, taxes this allowance at source, despite the express provision of the Income Tax Act (section 1(d) above), while for the fifth former official it imposes no tax. In other words, there is a difference in treatment, which should also be of concern to the Commissioner of Taxation
5. Our Service's findings
(a) From a relevant audit carried out by our Service by obtaining information from the Department of Social Security, our Service found that former officials (PM and PMB) receive the allowance for the employment of a private secretary, either without employing at all the person they declared to the Ministry of Finance, or by paying that person a salary less than the amount they themselves receive. In one case, the declared person is providing services as a self-employed person.
(b) Under the Social Security Act (Act 59(I)/2010), a person may be employed as an employee or as a self-employed person. Therefore, when we refer to the person who employs another person, it means with certainty that if the person employed is an employee, the person who employs him is his employer.
We have expressed doubts as to whether a person can be considered to be "employing" a self-employed person, since in this case it is a matter of receiving services.
We have expressed doubts as to whether a person can be considered to be "employing" a self-employed person, since in this case it is a matter of receiving services. However, we have not reached a definitive position on this aspect, since it can be argued that if the legislature wanted to exclude the self-employed regulation, it would have used the word "employs" and not "employs". In any event, the self-employed person would have to invoice the former officer on a tax invoice subject to VAT.
We also hold that a former officer cannot be deemed to "employ a private secretary" if she is employed by a company. If the company invoices the former officer on a tax invoice subject to VAT for secretarial services, then the problem is more formal than substantive, but there should be compliance with the formal part of the legislation as well.
(c) On the basis of the above, in our letter dated. 15.3.2024, we recommended to the Director General of the Ministry of Finance to comply immediately with the legislation and to terminate the payment of the allowance in question if the requirements of that legislation are not met, or to reduce it to the appropriate extent to those former officials who pay a salary below the amount paid to them by the Republic. As to the recovery of amounts already paid, we expressed the view that any amounts that have been paid to former officials should be recovered instead of to the persons they declared to be employed and to this end, in order to calculate the amounts, the Ministry of Finance should request the production of tax receipts.
6. Next steps of our Service
Based on Article 7 of the Law on Accounting and Financial Management and Financial Control of the Republic (Law No. 38(I)/2014), every control officer has a responsibility to implement control procedures that ensure the correctness in the payment of expenditures
Consequently, and especially since the Director General of the Ministry of Finance is now aware of the information we have obtained from the Social Security Fund, he has an obligation to act in a manner that ensures the correctness of the relevant payments. Our Office intends to conduct an audit after the payments for the month of April 2024 have been made. Should we find that any person has acted in a manner that may constitute an abuse of authority, then we will inform the Anti-Corruption Authority.
(AF/NZ)
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