* Confident that lost tax revenue will be replaced by growth
The Employers and Industrialists’ Federation (OEV) is calling on the government to lower the corporation tax by two and a half percentage points to pre-crisis levels as an incentive to local and foreign companies, confident that any loss of revenue to state coffers will be recovered from growth in the economy.
OEV, in a memo addressed to all cabinet members, except for the Defense Minister, has asked the Anastasiades administration to lower the corporate tax rate from 12.5% to 10%, the level prior to the financial crisis, to allow companies to make new capital investments.
OEV Chairman Christos Michaelides said that the federation will have separate meetings with each minister to discuss these proposals and other problems faced by employers.
The federation’s Director General, Michalis Antoniou, said that OEV believes “the implementation of these recommendations will pull us out of deadlocks and create more growth and jobs to return to the growth rate that this country deserves.”
Although OEV’s proposal may seem as an incentive for foreign capital to invest in the island, concerns have been raised whether the government will be able to cope with revenue losses from this measure, estimated to be in the region of EUR 20 mln per year. Indicatively, the government had tax income from this category of EUR 783.6 mln in 2017, up 10.23% from 2016 and without state infrastructure undergoing any serious changes.
And this, on the back of the government’s intention to create 740 new jobs in the civil service, without elaborating where the annual EUR 25 mln in added costs to the state payroll will come from.
Asked by the Financial Mirror to comment on concerns regarding losses from a possible reduction of the corporate tax, Antoniou said that while short-term losses are to be expected, they will be covered by an increase in investment activity over the mid-term.
“We expect that investments spurred by the tax incentive will lead to such growth of the economy, that any losses will be wiped out within five years,” added OEV’s deputy head. He said that the introduction of tax incentives is essential for international companies and organisations to acquire a physical presence in Cyprus, also stressing the need to agree with other EU countries to avoid imposing a single corporate tax rate throughout the union.
Antoniou explained that “less taxes equals more financial activity which will lead to greater income for the state”. He added that with less state coupled with technological advances and the digitaisation of the economy, Cyprus will soon see significant economic growth.
The director general of the federation also stressed the need to follow suit with other complementary measures which will restrict non-productive costs.
Echoing the same line, the head of the federation, Christos Michaelides also underlined the need to reorganise and modernise the payroll of the public and wider public sector, to rationalise wage costs and to implement an evaluation system to promote excellence and meritocracy.
Meanwhile, a senior official at the Ministry of Finance appears to be confident that the state will be able to cope with the corporate tax reduction. Asked to comment on OEV’s proposal, the source said that although the government has not calculated the impact from such a measure, the proposals “are in the right direction”.
“We agreed to review their proposals, including the reduction of the corporate tax to pre-crisis levels, to do the math and see if it they are applicable,” commented the MOF official.
OEV’s Michaelidis noted the importance of aiming to attract investors and financiers to new or ongoing projects, and to carefully and responsibly manage the naturalisation scheme through investments.
“We need to protect the institution of naturalisation through investments, in a manner that will leave no room for abuse,” said Michaelides. He also noted that the federation is in favour of the creation of two more Junior Ministries – for Development and for Tourism – which will facilitate investors during their dealings with state bureaucracy.
OEV also wants to abolish the employers’ contribution to the Social Cohesion Fund and to replace that with contributions to the National Health Scheme (GESY), as well as the reduction of the employers’ contribution to the Employees’ Redundancy and Welfare Funds from 1.2% to 0.6% in the case where an employer is declared insolvent.
Antoniou said that, “in reality, the contribution to the cohesion fund is more of a tax than a contribution; 2% of all our income goes to this fund which at the end of the day does not exist, and these ‘contributions’ go the state’s general coffers. We believe that with the introduction of the contributions to the NHS and raising social security contributions, now is the time to reconsider the so-called Cohesion Fund contribution.”
