Temporary VAT reduction on essentials estimated at €14.5 million

In the upcoming days, most likely early next week, a clearer picture is expected to emerge regarding the government's course of action on the reduced Value Added Tax (VAT) rate for fuel and electricity. Government Spokesman Konstantinos Letymbiotis made this statement in an interview with K, where he explained that the rationale behind ending the reduced VAT rate, at least for motor fuels, is aimed at reducing their prices. With the Finance Minister's return from Eurogroup and Ecofin meetings in Luxembourg and his meeting with President Christodoulides, final decisions can be anticipated. It should be noted that the measure is set to expire on June 30. Mr. Letymbiotis further mentioned that within the framework of the government's efforts to support households, other measures have been introduced to alleviate the pressure of rising prices, such as zero VAT rates and reduced VAT rates on specific products. These measures are intended to be more targeted and effective at this stage.

Regarding the cost of these plans, it has been estimated that implementing the reduced or zero VAT rates on essential items such as bread, milk, eggs, baby food, nappies, sanitary protection products, and adult diapers would amount to €11 million. This temporary measure came into effect on May 5 and is scheduled to end on October 31 of this year. During the latest Council of Ministers meeting, a second package of products and services was also approved for a reduced VAT rate of 3%, which is estimated to have an annual budgetary cost of €3.5 million. Overall, the implementation of these measures is expected to have a total budgetary cost of approximately €14.5 million.

The reduction of excise duty on fuel is estimated to cost around €12 million for a two-month period. This measure was implemented last month and is set to conclude on June 30. It should be recalled that this measure involves imposing reduced rates of excise duty on diesel, petrol, and unleaded petrol. Initially, the decision was made to reduce the rate by 4.16 cents for motor fuel and 3.19 cents for heating fuel, resulting in a budgetary cost of approximately €6 million (€5.96 million). However, during the parliamentary finance committee's deliberations, it was unanimously decided to revert the reduction to 100%, doubling the cost to €12 million. It is important to note that the fuel excise tax reduction measure will not be subject to parliamentary debate unless there is a new extension.

The government's intention to end the measure has already triggered reactions from consumers, petrol station owners, and political parties. DISY, in a statement, argues that the reduced excise duty should be implemented until September 30, citing a European Commission recommendation that allows for the extension of emergency support measures for the energy crisis until the end of the year, before their ultimate termination. AKEL also holds a negative position on the matter. Petrol station owners express concerns that the revised fuel prices resulting from the reintroduction of excise duty will encourage the purchase of fuel from stations in the occupied territories, an issue that has been a longstanding concern. It is worth noting that in July, prices including VAT will increase by 8.33 cents for motor fuel and 6.39 cents for heating fuel. However, according to the latest European fuel price bulletin for member states, the current price of diesel (€1.380/liter) and 95 octane unleaded (€1.381/liter) in Cyprus is among Europe's cheapest.

[This article was translated from its Greek original]