Cyprus 2% VAT rise to 19% by 2014

7 December 2012

As part of a new financial bail-out of Cyprus by the Troika - the European Union, European Central Bank and International Monetary Fund – a new VAT rise has been announced in Cyprus today.

The VAT rate will first increase by 1% to 18% on 14 Jan 2013.  There will be a second rise of 1% on 13 Jan 2014 to 19%.  The reduced rate will also rise in 2014 from 8% to 9%.  There will be no change to the 5% VAT rate.

Cyprus has been particularly hit hard during the current Euro crisis as its banks leant heavily to Greece, and are exposed to major write downs.  It is now dependant on a substantial loan from the Troika, especially as a loan negotiation with Russia now seems to have fallen through.

The VAT rate in Cyprus last increased from 15% to 17% last year.  It comes amidst a range of European VAT rises as governments seek to reduce their sovereign debts.

Such a large VAT rise would mean the total proportion of Cypriot tax increases to savings proposals would by 60% to 40% respectively.  This is relatively high compared to (for example) Spain, which  has opted for a ratio of approximately 40% to 60%.

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