Audit exposes serious issues in collecting unpaid taxes in Cyprus

An audit report from the Tax Department for 2022 has uncovered a staggering accumulation of over €2.5 billion in arrears, with €1 billion considered unsecure due to delays in necessary measures, the Audit Service revealed.

According to the report, the delay in addressing these outstanding taxes primarily stems from sluggish actions by the Tax Department. To rectify this issue, the Audit Office recommends leveraging all available tools, including freezing bank accounts and recording liens on real property, to tackle unpaid taxes effectively.

Furthermore, approximately 14,500 accumulated taxes, totaling €683 million, remain under appeal, rendering them uncollectible pending review. The Department's inability to identify and monitor the non-filing of income tax returns for individuals and legal entities across multiple tax years is highlighted as a significant weakness. The report also criticizes the Department for failing to utilize legislation allowing for discretionary levying of taxes, resulting in revenue losses for the State.

Another concerning aspect outlined in the report is the Department's inadequate measures to identify taxpayers who either underreport or fail to declare their income, leading to substantial revenue losses.

Moreover, the report suggests that during parliamentary discussions preceding an amendment to Article 9D of the Income Tax Law, representatives from the Ministry of Finance may not have provided accurate information on the financial impact of the proposed amendment. Subsequent amendments, influenced by the European Commission, significantly increased the total guarantee fee owed by a specific Foundation, prompting recommendations for administrative and disciplinary investigations.

Additionally, the Council of Ministers' decision to directly award a construction contract without proper authority raises concerns, prompting recommendations to rescind the decision and adhere to established procedures.

The report also highlights instances of the Department imposing taxes without adequate controls, particularly on companies sustaining losses over time, posing risks to public revenue. Insufficient monitoring of companies engaged in significant transactions with related parties further exacerbates compliance issues.

A notable case cited in the report involves the Department issuing a tax opinion contrary to legislation, resulting in a significant reduction in tax payable by a company. Instances where the Department failed to consider auditor opinions, such as those indicating a "disclaimer of opinion," underscore systemic shortcomings.

The Audit Service's findings shed light on critical deficiencies within Cyprus' tax system, calling for comprehensive reforms to enhance transparency, compliance, and revenue collection.

Cyprus has been grappling with economic challenges exacerbated by the COVID-19 pandemic, making effective tax administration vital for fiscal stability and growth.

[Information sourced from CNA]