12° Nicosia,
15 July, 2024

Finance Minister considers lowering VAT rates for basic necessities

Makis Keravnos contemplates measures to alleviate burden on households

Newsroom / CNA

The Minister of Finance of Cyprus, Makis Keravnos, has announced that the Ministry is considering measures for banks and credit-acquiring companies to absorb high-interest rate increases, as well as reducing value-added tax (VAT) for basic necessity products to tackle high prices. The Minister stated that all European countries, including Cyprus, are facing the serious problem of inflation and rising interest rates by the European Central Bank, which is causing financial difficulties, especially among middle-income groups and borrowers, particularly young couples, who are constructing or purchasing their primary residence.

The Minister has sent letters to the Association of Cyprus Banks and the Association of Credit Acquisition Companies, requesting that part of the cost of increased interest rates be absorbed and loan installments be stabilized to alleviate the burden on households. He believes that this approach will benefit the banks and credit-acquiring companies by displaying corporate and social responsibility.

The Ministry is also considering reducing VAT in some cases based on a new directive from the European Commission that allows for such actions. This may involve lowering VAT rates or even reducing them to 0% for specific categories of basic everyday products such as milk, baby food, and diapers. The Minister expects to finalize the decision on VAT categorization for specific products within the next few days as part of the government's policy to tackle high prices.

When asked about the level of reduced VAT rates, the Minister explained that there are different categories, some of which can be reduced up to 5% and some up to 0% and that the Ministry is examining these issues to formulate the new VAT categorization for specific products. He also stated that the new EU directive provides some flexibility to member states in terms of varying VAT rates.

Regarding pressure on banks to absorb the increase in interest rates, the Minister mentioned that after sending the letters, he plans to have a meeting with the Association of Cyprus Banks in the coming days to discuss the matter. He expressed hope that there will be understanding and cooperation from the banks to implement the requested measures.

Cyprus  |  economy  |  finance

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