Tax reform talks hit impasse as wealth tax proposals divide MPs

Strong disagreements came to the fore on Thursday as opposition MPs haggled with government officials over aspects of the tax reform legislation, just days before the bills head to the House plenum for a vote.

The vote at the House plenary will take place on Monday, December 22 – cutting it very close to the end of the calendar year, before which the government is keen to have the tax reform enacted.

On Thursday, Akel insisted on two ‘wealth tax’ bills it has drafted, which it wants included in the coming overhaul of the tax system.

The first legislative proposal would impose an annual 1 per cent tax on immovable property valued at €3 million and above.

But the finance ministry disagreed vehemently, saying the matter had been considered and rejected while devising the tax reform bills.

Ministry officials said reinstating the tax – abolished in 2017 – would require “broad deliberation” in order to avoid double taxation, given that properties are already taxed by municipal authorities.

The Akel proposal was also deemed deficient in that it doesn’t include tax brackets, nor does it explain the reasoning behind the €3 million threshold.

Despite the government’s opposition, Akel refused to withdraw the proposal and said it would table it at the plenum.

The party’s second bill to ‘tax wealth’ would involve a staggered annual levy on registered companies with assets of high value.

The levy would range from €350 to €1,250 for companies with assets between €1 million and €2 million.

Here again, the finance ministry and the tax commissioner disagreed. They pointed out that the annual registration fee on companies was only recently scrapped; bringing it back would harm the “credibility of the business environment”.

Officials also cited the fact that, under the government’s proposed tax package, corporate tax would go up from 12.5 per cent to 15 per cent.

Akel stuck to its guns, resolving to take its proposal to the plenum.

The House finance committee discussed other legislative proposals, such as that by Greens MP Stavros Papadouris relating to capital gains tax.

His proposal envisages extending the tax exemptions relating to debt restructuring, so that exemptions apply to non-performing loans (NPLs) initially given on or before December 31, 2020.

Currently, the tax exemptions apply to NPLs initially given on or before December 31, 2015.

Papadouris said he has tweaked his proposal so that it applies only to NPLs tied to a primary residence.

Responding, a finance ministry official said the government is generally against granting constant extensions. However it was willing to consider this particular extension.

Papadouris’ bill will likewise be tabled at the plenum next week.

Akel has meantime also proposed to permanently fix VAT on electricity to 5 per cent, and zero per cent VAT on essential items – such as baby formula, nappies and vegetables.

On this, the finance ministry said decrees already exist for reduced VAT. The decrees are deliberately temporary in terms of their duration, so that their impact can be periodically assessed.

For example the decree on zero VAT on essential items expires at the end of the year.

Four parties – Diko, Edek, Dipa and Disy – have jointly proposed to raise the tax-free threshold to €22,000 from the €20,500 proposed by the government.

The government says its tax overhaul will broaden the tax base, toughen enforcement and ease the burden on households and businesses.