Approximately seven months after the official presentation of the tax reform framework at the Presidential Palace at the end of last February, the entire project is entering its most pivotal and defining turning point.
Two of the issue's protagonists, Finance Minister Makis Keravnos and Tax Commissioner Soteris Markides are pictured above, with Keravnos on the left.
Going back to the beginning, it is crucial to point out the following: What was presented last February regarding the content, philosophy and orientation of the proposed tax transformation was welcomed and applauded by the entire business community of the country, as well as, in a corresponding manner, by almost all political forces.
We recall that InBusinessNews’ own reading and assessment was similar, as we emphasised and highlighted from the very beginning through a series of our publications that the proposals of University of Cyprus’ Economics Research Centre (CypERC) and the two independent experts were moving in an entirely correct direction, that what they envisaged served precisely the dual goal of creating an even more attractive business environment and of strengthening the competitiveness of the Cypriot economy.
In this context, InBusinessNews expressed the view and continue to firmly believe that through - for example - the complete abolition of deemed dividend distribution and the reduction of the withholding tax on actual dividend distribution to 5%, the tax reform, as presented months ago at the Presidential Palace, enhances the competitiveness of Cypriot businesses, achieves a fairer burden and a more effective tax treatment of profits.
We expressed the view and we also continue to firmly believe that through the maintenance/enhancement of existing privileges/incentives for foreign companies ( e.g. maintenance of the Notional Interest Deduction (NID), maintenance of a 50% discount for first employment in the Republic, maintenance of the framework for intangible assets (IP Box), maintenance of the non-dom status and its expansion, etc.), the country's position as an investment destination is strengthened, it becomes even more competitive in terms of its aim to attract foreign quality investments.
And for all these reasons, we had indicated the need not to unexpectedly alter the core of the reform and the need not to unexpectedly introduce changes that would derail it from its orientation over time and until its passage by Parliament.
InBusinessNews has never agreed and does not agree today with approaches - wherever they come from - that result in the cancellation of the tax reform proposed by CypERC and the experts. We have never embraced views and positions that essentially define as acceptable the continuation of the existing tax regime ( e.g. voices calling for maintaining the corporate tax at 12.5%).
Exactly the opposite is what we said, exactly the opposite is what we continue to say.
The provisions altering the character of the reform
The development of events certainly, and unfortunately, confirmed what InBusinessNews had been warning about.
That is, the risk of changing the core of the reform, since during the process of writing the bills, provisions were introduced that added content that did not largely reflect the image that was captured during the presentation to the President, creating reasonable, intense concerns among the business world regarding the orientation of the tax transformation.
Specific concerns regarding a series of provisions in the bills, the possible retention and passage of which in the laws that Parliament will be called upon to approve in the near future, would bring about chain reaction-like, harmful distortions to the business ecosystem of the island.
First, by making business a prisoner of the respective Tax Commissioner through powers granted to his Department, which would fall within his discretion and would provide him with the ability - among other things - to intervene and determine wages, to seal businesses permanently and a series of other potentially prescribed pathologies that would arise.
Second, by removing or weakening incentives that, within the framework of the tax reform proposed by CypERC and experts, are granted to Cypriot and foreign businesses, weakening instead of strengthening - through the weakening of these incentives - the position, the competitiveness and potential of Cyprus as an attractive investment destination.
There is a series of provisions in the bills which, in short, were introduced in the name of cracking down on tax evasion and combating the underground economy, but which, however, largely nullified key objectives of the tax reform, such as strengthening the attractiveness of the country's business environment.
Let's be clear about something... No one disagrees with the crackdown on tax evasion, no one opposes policies to combat the underground economy. After all, such a thing is only highlighted as a demand by businesses, it can only bring health and multiplier benefits to the broader economy.
What emerges as a major issue and topic is that any efforts in this regard should not strangle business, should not create through their clumsy and arbitrary attempted legislative enforcement, conditions of a "police-controlled" business field, a business ecosystem with a Big Brother (ie. the Tax Commissioner's Department) lurking behind it and determining it through its subjective judgment. And with its sword of Damocles hanging constantly, at the end of the day "suffocating" it.
What's next after the public consultation
In the context of the public consultation that concluded on 10 September but also through the private meetings that took place, business entities presented their opinions, positions and concerns, highlighted their points of disagreement with the bills and submitted proposals and suggestions.
The result of all these processes seems to be such that it creates the prospect of allaying, to a large extent, the concerns of the business world, since the Ministry of Finance, especially the Taxation Department, and by extension the Government, have shown that they partially understand these concerns and are ready to bring about the necessary changes.
In fact, Finance Minister Makis Keravnos has already spoken publicly about specific changes that are going to be made to the bills, with a portion of business entities - such as the CCCI and the OEB - expressing their satisfaction and now giving the entire effort the thumbs up.
Moving from words to actions
Accepting and trusting that the Ministry of Finance and, in particular, the Taxation Department are indeed oriented and intend to take corrective actions, what emerges as crucial for the next steps from now on is the transformation and transition of any assurances/promises that were given or are being given, from words and theory to practice.
What does this mean in practice? The clear recording of the changes on paper, especially in the bills that will be forwarded for approval, first to the Cabinet and then to Parliament, the clear wording in a way that leaves no room for double interpretations and misunderstandings.
In order for the tax reform to proceed without setbacks and setbacks, in order to convince business in an absolute way to return the reform to its original correct direction, the bills must not leave any shadows and gray areas in terms of what they provide, there must be no asterisks and footnotes, references of the "yes, but..." type, which the business world will find in front of it at the first opportunity.
The revised bills for the tax transformation of Cyprus must be more than clear; they must reflect with absolute clarity the tax framework into which our country will enter with the passage of the reform, ensuring the smooth and unhindered operation of business, the competitiveness of businesses in Cyprus and, by extension, the island as an international business destination and centre.
This was exactly the direction that was given during the presentation of the tax reform last February at the Presidential Palace, meeting with almost universal acceptance by the business and political world.
The broader political consensus
This is the goal and InBusinessNews has the impression that this is what the Ministry of Finance itself, the competent Minister Makis Keravnos, should set as a goal, and in this way he will convince the political forces of the country to support the reform.
InBusinessNews has the strong opinion that the broader political consensus that what the Government is very rightly seeking will not be achieved with threats of the type "if you make changes ( to the initial bills) I will withdraw it", it is not with ultimatums that the, what we consider to be the common, goal for the tax transformation of Cyprus will be achieved.
Opportunity to clarify intentions
In this light, the 15 September meeting of Makis Keravnos with the party leaders (at 4.30pm. at the Ministry of Finance) on tax reform appears to be a first-class opportunity to clarify the Government's intentions, to clarify whether the orientation it will give to the bills will be compatible with what the Ministry of Finance assured business and professional bodies during the public consultation.
Because ultimately, what will determine the outcome of the entire effort at all levels is whether the Ministry of Finance will prove on the ground its credibility, its willingness for a universally acceptable tax reform, through the submission of revised bills, adapted to what it heard and, in the realm of theory, accepted as reasonable concerns of our business community.
The most important thing is to submit bills with content that will not deviate from or negate the framework presented last February to the Presidential Palace.
A clear approach
The approach should not be, we repeat and clarify, the adoption of positions that operate on the logic of excommunication, nihilism and, on a practical level, the cancellation of this project, which is of vital importance to the economy and business of Cyprus.
On the contrary, what we consider and emphasise as extremely important are the promises and assurances for corrective actions to be put into practice, for a tax transformation in the spirit of its initial presentation, for a tax reform that will strengthen and not weaken through the "small print" in the bills the business environment of the country, and, at the same time, the competitiveness of the Cypriot economy.
(Source: InBusinessNews)
