The bill for the reduced VAT rate of 5% for the purchase or construction of a first home is considered a top priority both for the Parliamentary Finance Committee and for the new Minister of Finance.
Pending the opinions of the new Government, the Committee of Finance aims to formulate a crystallized opinion within March and bring the issue to the Plenary, if not at the first Plenary on March 9, then at the next one.
Given that the infringement procedure on the matter has already been initiated by the European Commission, the President of the Parliamentary Finance Committee Christiana Erotokritou assured that she will not allow any financial burden on the Republic of Cyprus on the matter.
The Finance Committee currently has before it two proposals for a law on the subject, one from AKEL and one from the Environmentalist MP Stavros Papadouris.
AKEL proposes setting upper limits on the value of the residence per square meter, in order for the construction, extension and purchase of a residence to be subject to a reduced VAT rate. Also subject to a reduced VAT rate of 5% and the extension of the residence, which is done to cover family needs that arise after the acquisition or construction of the residence, provided that the conditions determined by the law in relation to the area of the residence are met. Also subject to the reduced VAT rate of 5% and the works carried out by third parties and related to the construction, extension and completion of a residence, with which the beneficiary person contracts directly.
The proposal of Mr. Papadouris foresees the reduced VAT rate of 5% to be applied for the first 180 sq.m. of buildable area, in case of delivery or construction of a house whose total buildable area does not exceed 220 sq.m., provided that the value of the house does not exceed €300,000 for the construction of a house and €450,000 for the purchase of a house.
The latest bill submitted by the government to Parliament foresees the imposition of 5% VAT on the first 170 sq.m. houses, with a total area of up to 220 sq.m. and with a transaction value of up to €350 thousand. Also, a reduced VAT will be imposed for the first 90 sq.m. of apartments, with a total area of up to 110 sq.m. and with a total value of up to €200 thousand.
The Tax Commissioner requests a clear interpretation from the Parliament
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The Commissioner of Taxation, Sotiris Markidis, speaking during the Committee's session, requested a clear decision from the Parliament, regarding the interpretation of the beneficiaries, since in the past there was a strong position by the Auditor General for incorrect interpretations.
He also expressed concern about some paradoxes that exist today in the implementation of the 5% VAT, such as the obligation of someone who benefited from the reduced VAT for a smaller house, to return it if he wants to benefit again from the benefit ten years ago. As he said, this is especially unfair to young couples who are forced to live in a small space until they are ten years old. He also mentioned that there are restrictions on renovations.
At the same time, he stated that there are no restrictions in cases of plots, since based on the relevant plan, in the event that someone builds on his own plot regardless of the area, there is an obligation to refund all the VAT. He also asked for clear transitional provisions so that everyone knows what is being applied.
Mr. Markidis also added that in the last decade there were 40,000 applications for a reduced VAT rate and 90% were approved. He added that in the last two months of 2022, 2,200 on-site inspections were carried out based on risk analysis and more than 25 million euros in revenue was generated from them. The controls, he said, will continue in 2023.
Ministry of Economy: They do not know to what extent the Commission's process can be overturned
On behalf of the Ministry of Finance, Senior VAT Officer Naya Symeonidou said that based on new data for 2019-2021 presented to the European Commission, the first proposal for a maximum area of 140 square meters has already been rejected and that any new proposal should be supported by some data , so that there is a movement of the Commission which has already seen the bill and sent the deadline.
Already, it was reported, he is in the process of violation without, as he said, the Ministry of Finance knows whether this process can be overturned or what will happen if the letter goes ahead.
He also expressed concern about any mass applications for urban planning permits. in the transitional period between the existing and the new regime to be implemented.
On the part of the Association of Major Developments, it was requested that there be no separation between an apartment and a house, and that a limit be placed on the selling price and not on the square footage. He also proposes, given the increased cost of construction, to set the upper limit up to 500,000 euros and then to reduce the VAT proportionally. On the same wavelength and the OEB and the KEBE.
ETEK also proposed some corrections such as the revision of the value price which was based on 2021 prices due to inflation. He also asked that there be transitional provisions based on when the application for planning permission was submitted and that there be no separation of apartments and residences.
The Association of Real Estate Owners stated that because the limits set will create injustices, it does not see the need to satisfy all the conditions set, but either the condition of the area or the condition of the value must be satisfied.
The The Association of Architects agreed with the opinions of ETEK and raised the question of what will be done with the lost building factor and to what extent an adjustment should be made to the urban planning zones.
The Association of Civil Engineers requested that there be a separation of the construction with the housing market.
The Association of Building Contractors requested that the amounts be revised upwards due to the increased costs and that the transitional period to be given for the implementation of the plan be determined.
They are asking for recommendations from the new Minister of Finance
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Speaking after the end of the Committee, the Chair of the Committee, MP Christiana Erotokritou of DIKO stated that the goal for this very important bill that affects many people is to reach consensus on specific areas of concern in order to address various problems that may arise with its implementation government bill.
He said that the corresponding improvements and amendments should be made within the framework of the European directive, so that we can move to a new situation that will maintain orderliness in the market and will not affect the orderliness of social classes which the bill should help. He expressed optimism that there would be a joint decision in the coming weeks.
He also expressed the opinion that the new Minister of Finance for the first one who should have a suggestion and opinion is for this bill. She added that her own perception is that everyone wants cooperation, mutual understanding, common solutions and a common position in the Plenary.
Asked about the violation procedure, she said that they are still at the beginning of the procedure by the European Commission and assured that an effort is being made to prevent any impact on the Republic of Cyprus and assured that they will not allow any burden on the Republic.
DISY Member of Parliament Savvia Orfanidou stated that the best possible should be done to help and support the middle class within the framework set by the European Commission and also within the framework of social policy. He also expressed the view that improvements have already been made in the past year and a half, through the Ministry of Finance negotiation, however it appears that there are still open issues that can be improved and further clarified, such as renovations, price increases, the ten year payback period of VAT etc.
AKEL Member of Parliament Andreas Kavkalias said that the problem with the reduced VAT rate of 5% was created when this government, overflowing or incorrectly applying the relevant legislation, granted a reduced rate to unscrupulous investors, while he blamed the Government for having spread the problem to society in the midst of a housing crisis crisis. He added that the government bill is problematic and the values it sets are not consistent with market prices and no distinction is made between buying a ready-made house and building a house. He referred to the provisions of the law proposal submitted by AKEL from 2019 and said that it is important to have the views of the new Government on the matter.
EDEK Member of Parliament Ilias Myrianthous asked the new Ministry of Finance to consider the possibility of renegotiating the VAT on the first residence with the European Commission. He also said that there are still divergent approaches to how each side, whether governmental or parliamentary, wants to regulate the whole issue. He added that there is a desire to find common recommendations so that the final text of the bill that will be submitted for voting is not rejected by the European Commission. He also said that at the ECOFIN conference on 07/12/2021 Greece managed to get some exceptions around this issue.
DIPA Member of Parliament Alekos Trifonidis expressed disappointment since, as he said, the position of the Ministry of Finance is the same as it was communicated to them three months ago without any additional negotiations with the Commission and improvement of the provisions of the bill. He also expressed serious reservations and questions about the content of the bill, since, as he said, both the proposed areas and the values do not correspond to today's data, with the result that citizens from middle and low income strata are not beneficiaries. He also said it is critical to have transitional provisions in place so that individuals and families who are already in the process of acquiring a home are not excluded. He asked the new President and the new Minister of Finance to get involved in solving the issue and to renegotiate it as soon as possible.
The MP of the Environmental Movement – Citizens' Cooperation Stavros Papadouris said that reservations and questions were raised that seem to lead to the improvement of the government bill, since the Ministry of Finance seems to take into account some of the suggestions made, so that the distortions are corrected and the measure is much more targeted. He expressed the hope that the bill will be brought to the Plenary Assembly in two weeks. He said that we should be somewhat generous on the matter since "it does not raise us after six months or after a year to go back to the European Commission to ask for other changes or relaxations".
Source: KYPE
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