Tax amnesty to help re­vive the real es­tate mar­ket

Financial Mirror (Cyprus) - - FRONT PAGE -

Our econ­omy is in ur­gent need of liq­uid­ity and nei­ther the real es­tate mar­ket nor any other in­vest­ments will get a much­needed boost with­out se­cur­ing loans first.

On the other hand, the gap be­tween loan and sav­ings in­ter­est rates is too wide. This can only shrink with the re­duc­tion of sav­ings in­ter­est but most im­por­tantly with that of loans in­ter­est rates, once mar­ket liq­uid­ity im­proves.

At the same time, liq­uid­ity will also help re­duce the num­ber of non-per­form­ing loans (NPLs). So, where’s the cash? It is widely ru­moured that Cypri­ots keep about 1.5-2 bln euros out­side of the bank­ing sys­tem, in bank vaults, houses, etc. It is also not a se­cret that many Cypri­ots have sig­nif­i­cant de­posits abroad, while many of th­ese de­posits orig­i­nate from un­de­clared in­come.

Based on all th­ese fac­tors and given the fact that the mar­ket is crav­ing for liq­uid­ity, is it per­haps not time to go ahead with a new tax amnesty?

Sim­i­larly, isn’t it also timely to of­fer in­cen­tives so de­clared funds find their way into the banks?

In other words, what we should be aim­ing for is a tax amnesty for un­de­clared funds to find their way home and in­cen­tives for de­clared funds to stay here.

With the stress tests be­hind us, the Euro­pean Cen­tral Bank (ECB), could guar­an­tee new de­posits, per­haps even in ex­cess of 100,00 euros, say up to 500,000, in co­op­er­a­tion with the Cen­tral Bank of Cyprus. Th­ese de­posits may carry a re­duced in­ter­est rate as a cost for the guar­an­tee.

Yet another sug­ges­tion would be for the ECB, to is­sue bonds for Cypriot buy­ers through Cypriot banks and de­posit the funds with the banks so that they can ben­e­fit from the gen­er­ated

that liq­uid­ity. As far as un­de­clared funds are con­cerned, a min­i­mum tax­a­tion should ap­ply for them to be de­posited in Cypriot banks, with, say, a 30-day grace pe­riod.

All de­posits made within this pe­riod should be con­sid­ered taxed funds and must be ig­nored for pur­poses of cap­i­tal state­ment.

Even if only 1 bln euros find their way to the banks, this will in­crease liq­uid­ity and be a boost for many sec­tors of the econ­omy, in­clud­ing that of real es­tate.

It should be made clear how­ever, that anti-money laun­der­ing reg­u­la­tions should ap­ply to the full (il­le­gal ac­tiv­i­ties, drug sales) and such funds will never be al­lowed to per­me­ate into the bank­ing sys­tem.

We ex­pect that bold moves, like the tax amnesty, are the ones re­quired and should help the gov­ern­ment bring about the much-needed eco­nomic growth.

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