Government mulling zero VAT on essential goods

The government is considering removing VAT on some food stuffs to relieve households from inflationary pressures and a hike in interest rates.

Despite March seeing the lowest inflation rate for 13 months, households continue to feel the cost-of-living pinch as they spend more on food.

According to the Cyprus Statistical Service (CyStat), Inflation in March retreated to 5.1%, from 6.7% in February but still historically high, continuing its downward trend after peaking last summer.

Cyprus saw a record inflation rate in July when it peaked at 10.9%; the previous high was 10.8% in December 1981.

According to official sources, quoted by Phileleftheros daily, the government is mulling over reducing or even abolishing

VAT on some food items.

The European Commission has given the green light to member states to reduce VAT on 10 to 15 essential items.

A VAT reduction could be imminent as the finance and commerce ministries are allegedly putting together a list of items.

The list will be included in a legislative amendment, to be tabled before the House.

Among the items to get zero VAT are milk, bread, and baby food. Currently, these products are subject to 5% VAT.

Phileleftheros said the government is considering reducing the VAT from 19% to 5% on other popular products such as detergents, fabric softeners, toilet paper, baby diapers, cleaning supplies and adult diapers.

Lists prepared by member states will need Brussels’ approvement, as the bloc also benefits from VAT imposed.

The government will be looking to impose safety nets, so that any reductions in VAT will be recorded on shelf prices, and not benefiting retailers.

Reducing VAT on children’s items, such as food and clothing, was among President Nicos Christodoulides’ prelection commitments.

Christodoulides is also committed to reducing VAT on photovoltaic systems, via a government decree, while increasing tax-free yearly income from EUR 19,500 to EUR 24,500.

Last week, the government decided to continue subsidising fuel prices at the pumps by extending a reduction on consumption tax for another two months.

The Finance Ministry announced the government will extend the reduction until the end of June but will be halving it.

The tax freeze has cost the state EUR 100 mln in lost revenue but offered drivers a respite from hiking prices.

The extension is expected to cost the state another EUR 5.96 mln.

The government is also extending a subsidy on electricity bills introduced by the previous administration for another two months until the end of June.

It provides discounted bills of up to EUR 68.72 — and was to expire at the end of April – depending on the level of consumption.

The measure has benefitted some 449,000 households and 111,500 businesses. The estimated cost of the measure introduced in September 2022, up until April is EUR 95 mln.