YPOIK: Reduction of VAT for home use from 19% to 9%

Intention to reduce VAT for a period of 3 months for household use from 19% to 9%

405224DA D907 4341 B3A0 E5E2E0AA7376 ΥΠΟΙΚ, VAT

The Minister of Finance issued an announcement regarding the increase of the price of electricity. Konstantinos Petridis notified the EU VAT Committee of the intention to reduce VAT for a period of 3 months for household use from 19% to 9%

This announcement:

The increase in the price of electricity is a global phenomenon, which burdens the international economies and especially our vulnerable fellow citizens.

The Government from the first moment took measures to alleviate the phenomenon such as:

1. The reduction by the EAC of about 10% in consumer tariffs, which continues for 10 months and until February. Cyprus is one of the only countries in the EU. which has taken such horizontal measures for all consumers.

2. The reduction of the VAT rate on electricity consumption in vulnerable households, from 19% to 5%, for a period of 6 months from which approximately 34.000 households can potentially benefit.

In addition to the above, responding to the Parliament's call for further reinforcement, and studying price fluctuations, we notified the EU VAT Committee of our intention to reduce for 3 months the VAT for household use from 19% to 9%.

We consider that the above measure is in line with the toolkit and the recommendations of the European Commission to deal with the increase in prices, which refers to the adoption of temporary and targeted measures that will prevent the risk of energy poverty and will not affect the market.

At the same time, responding positively to the appeal of the Parliament, I also address my own appeal as law proposals are avoided, which have a huge impact on public finances, especially when they affect the expenditures and revenues of the state on a permanent basis and unintentionally. I believe we all agree that protecting public finances should be everyone's primary goal, because as the pandemic crisis has shown, state revenues are what support vulnerable groups and working citizens in times of crisis. After all, it is these revenues and sound financial management that have allowed the Government to increase social protection expenditures by 18% in 2020, compared to 2019, which is the third largest increase in the EU, according to recent EU data. Ε.

The interim measures aim to mitigate the effects of the increase in the price of electricity in the short term. We must, however, point out that, gradually and in the context of the green transition, what we must aim for is energy savings and detoxification from fossil fuels. Green tax reform, after all, will lead to a further increase in the price of fossil fuels in the near future.

That is why the state budgets in the coming years, include relevant programs and plans, providing the necessary support for households and businesses. I urge everyone to take advantage of these programs, because they are the key to getting rid of fossil fuels and price fluctuations. Programs such as:

- Ministry of Energy, Commerce and Industry - sponsorship for the replacement of energy-intensive appliances and in particular air conditioners, refrigerators and washing machines, with new efficient high-energy class products for vulnerable consumers, from the Ministry of Energy, Trade and Industry

- Sponsorship Plan for installation of photovoltaics and net-metering

- RES Fund plan for thermal insulation and photovoltaics

- Energy upgrade plans

In addition, with regard to other policies that contribute to the restoration of disposable income, both employees and retirees are:

1. The ATA in salaries, pensions and allowances, both those granted by the Public Sector and the salaries of employees in the private sector, based on the agreement reached between the social partners with the Ministry of Labor. With the current inflation trends, these increases due to ATA, are expected to exceed 200 million euros and will come by one third from the public sector and by two thirds from the private sector.

2. The connection of the cost of living with the EUS and other benefits.

3. For businesses, VAT paid on electricity is deducted from VAT collected by businesses and therefore does not constitute a cost for themselves nor does it increase the cost of services they provide or products they manufacture or sell. It is noted that during the period January-October 2021 the price of electricity increased by 10,1% compared to the corresponding period last year. The modest increase is due, both to the particular increase in international oil prices, and to the reduction of electricity bills by 10%.

According to data from the Statistical Service, during the period January-October 2021 the arithmetic average of the category "Electricity" of the Consumer Price Index (CPI) rose to 115,36 points from 104,82 points in the corresponding ten months of 2020. It is noted in parallel that in the same ten months, in 2019 the average of this category of CPI amounted to 116,39 points, ie higher than the corresponding average of 2021. At the same time, it should be noted that the basic VAT rate in Cyprus of 19% is one of the lowest compared to other EU Member States Specifically, the basic VAT rate in 23 of the 27 MS of the EU. ranges between 20% and 27%.