* To plug gov’t deficit, no measures to cut public payroll *
Cyprus companies that have shown profits for the past three years will pay an interim tax of 1,000 euros for the next two years to help bolster state finances.
"If, from among the 170,000 companies registered in Cyprus 100,000 pay, we estimate an amount of 100 mln euros will be collected," Finance Minister Charilaos Stavrakis said after a meeting with employer organisations at the Presidential Palace.
It was not immediately clear if the same levy would be imposed on firms irrespective of size, or when it would take effect.
An attempt by the government to hike corporate taxes by 1% last year did not get through parliament, while accountants, lawyers and the services sector had also objected to the proposal saying this would deter foreign companies from investing here. Nearly a third of the 170,000 registered companies are foreign-owned entities with international or “offshore” activities.
Cyprus, one of the smallest countries in the euro zone, has been struggling to keep a lid on growing deficits in recent years, caused by a slump in its property and tourism sectors and a growing state payroll.
It is trying to contain its public deficit below 4.5% of GDP. Authorities have also floated staggered pay cuts of up to 3.5% in the public sector and are expecting feedback from labour unions.
PUBLIC DEFICIT CONCERNS
Speaking after the meeting with President Christofias, the heads of the two employer organisations said that they viewed the proposal quite positively.
However, Employers and Industrialists Federation (OEV) chairman Philios Zachariades said that they had a “useful discussion with President Christofias” and that the next step would have to be how to contain public spending. He said they also reviewed the issue of property taxation and how this could be made fairer, while the biggest concern is the viability of the social insurance fund and pensions.
Manthos Mavrommatis, president of the Cyprus Chamber of Commerce and Industry (KEVE), said that the Cyprus economy could not withstand any further downgrades by the rating agencies which would take borrowing costs higher.
He added that measures needed to be implemented immediately to increase state revenues but also to reduce public spending.
