Flaws Detected in Cyprus's Tax Revision, Assert Unions
In a critical assessment of the upcoming tax reform in Cyprus, labor unions and economists have raised concerns about the proposed changes, focusing on issues of social justice, fairness, and equity. The reform, they argue, may disproportionately impact the middle class and low-income groups.
The University of Cyprus's data reveals a severe surge in tax evasion and tax avoidance, a significant deficit that the reform has yet to adequately address. The unions argue that the middle class and workers whose annual salaries do not fall below the taxable income threshold have been left out of the reform equation.
Andreas Matsas, Secretary General of SEK, noted serious gaps regarding the tax-free threshold, proposed tax brackets, and tax deductions. This means that the overwhelming majority of workers, who make up about 60% of the domestic workforce and have an annual salary of up to €20,500, do not benefit from the current draft of the upcoming tax reform.
The four trade union organizations participating in the Labour Advisory Body believe there has been no substantial or adequate social dialogue regarding the social orientation of the tax transformation. Around 60% of workers in Cyprus receive a monthly income of approximately €1,500, a figure that has not been taken into account in the proposed reform.
The unions stress the need for a socially fair tax reform, resulting from collective proposals and recommendations from all social partners. Critics argue that the reform falls short of delivering true progressivity, neglects the poorest groups, and tightens fiscal pressure on the middle class.
Stelios Christodoulou, President of DEOK, pointed out that the average worker in Cyprus spends about 80% of their salary on basic goods, with a 19% VAT rate. The lack of policies to broaden social protection or provide rent relief is a particular concern, as it may further strain vulnerable groups.
The proposed tax reform does not adequately engage social partners in its design, according to the SEK Secretary General. This lack of dialogue means less democracy, he asserted.
While the reform aims to modernize and simplify the fiscal system, it is broadly supported that it should also align Cyprus with EU and OECD standards, including addressing tax avoidance and evasion. However, concerns remain about whether the tax system effectively tackles inequities caused by avoidance schemes benefiting high earners and corporations.
The reform's ambitious sustainability incentives, including green taxes, could potentially impact living costs without adequate compensations, another point of contention among labor unions.
In conclusion, the critical perspective from labor unions and economic experts is that while the tax reform attempts to modernize and simplify the fiscal system, it falls short of delivering true progressivity, neglects the poorest groups, tightens fiscal pressure on the middle class, and does not sufficiently engage social partners in its design. The reform is seen as likely to perpetuate or even exacerbate existing social inequalities rather than correct them through fair taxation aligned with social justice principles.
The University of Cyprus's data reveals that the proposed tax reform has not effectively addressed the significant issue of tax evasion and avoidance, which impacts the finance sector. Despite the reform's focus on addressing social justice and fairness concerns, labor unions argue that the middle class, along with workers earning less than the taxable income threshold, have been omitted from the financial benefits of the reform.
