The Government's thoughts on a general reduction of VAT, but also on the possibility of extending the measure for zero VAT on essential products, was revealed by the Minister of Finance, Makis Keravnos, in an interview with Euronews.
< p data-block-key="4neca">As mentioned in the publication, in Cyprus last week the prices fell on over 1700 basic products, such as milk, bread, eggs, baby food, baby diapers and personal hygiene items.
It was the result of the Finance Ministry's decision to zero out VAT on many products to give households a breather. Inflation in Cyprus has fallen to the third lowest level in the eurozone, however the accuracy in many items – and especially in food – persists.
The Minister of Finance, Makis Keravnos, he spoke to euronews about the decision to eliminate VAT, how to crack down on profiteering and what measures are being considered for the immediate future.
The decision to zero VAT is clearly a favorable measure, however it will only last for 6 months. Do you think that's a long enough time to make a substantial difference to the cost of living?
“This decision of ours is directly related to dealing with inflation and accuracy, which is a phenomenon for which many measures are being taken both at the European and national level. The goal is gradual and we hope that by the end of the year there will be a reduction in inflation. In an effort to address accuracy and provide relief to households we have taken this decision to zero out VAT on a range of essential everyday products. Our decision has a time duration of 6 months and we expect that there will be a reduction in inflation, therefore in accuracy. In any case, if the measure is needed, it will be studied and we will make the corresponding decisions”.
Have you set a target price for inflation?
“Yes of course. We have set goals – in accordance with the obligations that each member state of the European Union has with the four-year programs – to reach the Maastricht criteria by 2026. For inflation, our forecast is that by the end of the year it will hover just above 3%. At the end of 2024 it will be at 3%, maybe even lower, to reach 2.5% in 2026. In April, inflation in Cyprus had fallen to 3.8%.
Whether the zero VAT measure is extended will depend on inflation, the accuracy , because the accuracy is mainly due to structural inflation, but also to the increase in interest rates coming from the European Central Bank, and also from fuel prices, after the geopolitical developments and the war in Ukraine”.
If in 6 months inflation is at 3.5%, will the measure remain? What is your threshold for deciding whether to extend the measure or not?
“This will be assessed at the given time when the measure expires . All parameters and developments will be evaluated. And we will decide accordingly.”
Cyprus: The e-Cart is coming
The debate on reducing or eliminating VAT is also taking place in Greece, however those who do not support the measure say that the benefit will not be passed on to the final consumer. What is your opinion and how will you ensure that the benefit actually reaches the consumer?
“Certainly there should be some safeguards to prevent any attempt at profiteering. We have the Consumer Service at the Ministry of Commerce, whose officials have gone to the supermarkets and the rest of the store in good time and there are daily checks – both in advance and afterwards – to ensure as much as possible that there will be no tendency for profiteering. Also, another insurance cover, which I think has been introduced in Greece with very good results, is the “Household Basket”. We are also preparing to implement a similar measure, where the prices of basic products will be presented electronically, on a daily basis, and thus it is difficult to suddenly see evidence of profiteering.
The e-Basket will be electronic, with an application on mobile phones. Consumers will be able to monitor the prices of essential products and will be able to compare prices and decide for themselves where to get essential goods. The e-Cart will start with a few products – about 350 products – and then new products will be added and will probably reach well over 1300 products. This measure has been approved by the cabinet. The legal regulation will be prepared and hopefully in 2-3 months it will be implemented, without being sure exactly about the timetable, because it does not depend entirely on us.”
To return to the zero VAT measure. Is there an estimate of the cost to public finances?
“Of course, it's 11 million for the 6 months. Before we take these measures, which have some costs, we definitely weigh the incomes and make corresponding decisions so that there are no negative effects on the fiscal balance”.
Cyprus: A generalized VAT reduction is being considered
Is there a chance that this measure of zero VAT will be extended to other products?
“That is a possibility, but what we are currently working on is another list of products and services to reduce VAT. This process will take a little more time. We should have the approval of the European Union and the measure should pass the Parliament. For example, VAT rates currently at 19% on some products could drop to 13% or 3%.”
With given that inflation has begun to de-escalate, do you think these might become permanent measures?
“No, because the European Union directive allows certain economic and social conditions to be able to do these manipulations. This effort cannot be consolidated in the normal operating conditions of an economy. There is a general directive of the European Union which determines the tax rates and also determines, as in the case we are talking about, which tax rates could be reduced to some extent, i.e. below 5% or up to 5% etc. There is a whole list within the framework of the directive and we are of course thinking of making use of these margins, because the conditions resulting from the ongoing war, which disrupts the product supply chain, but also energy issues, have certainly created social problems and economic problems. Therefore as a government we have the responsibility and especially the new government of our President Nikos Christodoulidis has a special sensitivity to these social policy issues”.
source: Reporter
