Reactions for the new bill for a reduced VAT rate for a home

The revised bill for reduced VAT rate when buying or building a main residence caused serious objections

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The revised bill for a reduced VAT rate on the purchase or construction of a main residence, which was presented to the parliamentary committee on Finance, provoked serious objections.

The revised bill, presented by the Director General of the Ministry of Finance George Pantelis, introduces a separation in value and buildable area between houses and apartments. However, all those involved called for new consultations with the Commission in order to increase the value, the transition period and the area of ​​the apartments.

In particular, for houses the revised bill provides an eligible value up to € 350.000 euros while the reduced VAT rate of 5% will benefit homes with an area of ​​up to 220 square meters (sqm) with the benefit of the first 170 sqm. For apartments the value was set at € 200.000 with an area of ​​up to 110 sq.m., while the first 90 sq.m. benefit from the reduced rate.

At the same time, as Mr. Pantelis stated, the bill provides a transitional provision according to which those who apply to the VAT Service until November 30, 2022, after first obtaining a building permit, will be entitled to benefit from the existing regulations.

Also, as he said, the revised bill does not provide any ceiling regarding people with disabilities (PWDs).

He also explained that the separation between houses and apartments was done in order to increase the areas, since the data cited by the European Commission in its warning letter concerned a general area (both houses and apartments) of 140 sq.m.

The President of ETEK, Konstantinos Konstantis, expressed reservations regarding the transitional provision of the bill, saying that it will not be possible for someone to obtain a building permit and assign the project to a contractor, so that he can submit an application to the VAT Service. On the contrary, it was suggested that provision be made for the issuance of an urban planning and not a building permit by the end of November.

He also raised the issue of construction costs, saying that since the beginning of the year construction costs have increased by 20%.

For his part, Michalis Hatzipanagiotou, representative of the Association of Land Development Companies said that the bill, as formulated, and in the midst of increases in construction costs will raise the prices of used apartments and houses, since, as he said, with the ceilings that have been set does not believe that apartments and houses will be found at these prices. For the transition period, he said that "no one will manage" to issue building permits until the end of November.

A representative of OEB said that the separation between houses and apartments does not meet the principle of proportionality, adding that rents will be driven to even higher levels because families will not be able to buy a house with the existing limits. "We consider that it is not the appropriate time frame to implement" the bill, he added.

The President of the Commission, Christiana Erotokritou, also said that with this transitional provision, no one will be able to submit an application, while she wondered whether this is a "photographic arrangement". He also wondered if there was room to remove the value ceilings but to keep the areas set in the bill.

On behalf of the Association of Property Owners, George Mouskidis said that the issue of the transitional period is problematic and added that there should be no separation between houses and apartments.

A representative of the Association of Architects agreed with the separation of houses and apartments, recalling that with the previous provision the areas of eligible houses were lower. He suggested that the bill include a provision for renovation of buildings, saying that in Cyprus there is a large stock of old buildings.

For his part, Giannos Poumpouris of OSEK said that with the course of the increases, we will not find two-room apartments under € 200.000.

Responding, the DG of YPOIK said that the prices were determined based on the latest official data concerning the period until the end of 2021, adding that there is a provision for reviewing prices at regular intervals.

On behalf of DISY, the Deputy Chairman of the party, Haris Georgadis, acknowledged that there is some improvement from the previous draft, adding, however, that there is an issue regarding the apartments, which will not exceed two bedrooms, while noting that there is a problem. with the transition period.

AKEL MP, Andreas Kafkalias, expressed reservations about the ratio of value and area, which, as he said, does not reflect the realities of the market. "With the values ​​coming down, the areas will be much lower than they are set," he added.

On behalf of EDEK, Elias Myrianthous said that with the prices that are valid today, a price revision is required.

Criticism for choices from one end to the other was expressed by the MP of Ecologists, Stavros Papadouris. "Where we were at the point and covered the multimillion-dollar apartments for a reduced VAT rate, we now put such a narrow framework," he said.

On behalf of ELAM, Sotiris Ioannou said that he disagrees with the transitional provision of November 30 and added that the maximum values ​​that have been set do not reflect the large increase in building materials.

DIPA MP, Alekos Tryfonidis, said for his part that with the price increases that apply in the market, the prices mentioned in the bill cannot be approached.

Responding to the positions of the deputies, George Pantelis, after reminding that Cyprus is in a process of infringement, said that the consultations with the Commission were informal because the process is in progress. "The European Commission is awaiting the outcome of the consultation and how the new legislative framework will evolve to see how it goes," he said.

A spokesman for the Legal Service said the warning letter had been sent by the Commission in September 2021 and that the next step was to send a reasoned opinion. "So something has to be done," he said.