Cyprus’ business community appears to be in shock after Finance Minister Harris Georgiades floated the idea of raising corporate tax from the current 12.5% to 15%.
In fact, representatives of business bodies have sent the message that the timing could not be worse considering that contributions to the country’s fledgling General Health Scheme (Gesy) have just begun and will further increase in a year’s time.
One told INSIDER that contributions to the Social Security Fund are also on the rise, and the last thing they expected is what the Minister just proposed. After all, tax reform proposals that are currently under discussion between them and the Ministry make no reference to changing the tax rate.
Insiders also said that the Minister’s proposed changes to set off such an increase are not satisfactory either. Amongst the changes are reducing the tax on dividends from the current 17% to 15%, reducing the capital gains tax from 20% to 15% and halving the tax on interest from the current 30% to 15%.
An insider argued that while corporate tax affects all businesses, the reduction of the tax on deposit interest affects mainly natural persons and the reduction in capital gains tax does not affect all businesses the same way.
The insider also said that the service sector is already under strong pressure with companies leaving Cyprus because of the shell companies directive by the Central Bank of Cyprus and the very strict bank controls. An increase in corporate tax would be a devastating development for international business, especially at a time when countries such as Greece and Britain are getting ready for post Brexit tax cuts, he said.
By Antonis Antoniou