Cyprus’s ambitious tax reform is facing mounting scrutiny, with the Fiscal Council repeatedly warning that the package, in its current form, risks becoming a missed opportunity unless it is expanded to address long-term economic and social objectives.

In its first intervention, the Council acknowledged that the government’s proposed changes meet some of the stated objectives but stressed they lack the scope required for a genuine “reform.” Taxation, it argued, should not only raise revenue but also influence household and business behavior through incentives and disincentives aligned with national priorities.

The Council also underlined the importance of balancing stronger state powers with safeguards for citizens. While supporting efforts to tackle tax evasion, it cautioned that expanded powers for authorities must be accompanied by clear checks to protect taxpayers’ rights. It further called for detailed scenario analyses during the parliamentary process, particularly if amendments alter the shape of the reform package.

In a more recent and extensive note, the Council focused on the proposed increase in the corporate tax rate from 12.5% to 15%. While describing the move as necessary to align Cyprus with international standards and enhance its image abroad, it warned that the measure alone cannot achieve the desired outcomes. Without complementary non-tax measures, the higher levy could undermine competitiveness in the short term.

To offset these risks, the Council urged the government to adopt a coherent strategy for foreign direct investment (FDI), prioritizing investors’ social, technological, and developmental contributions rather than just their size or number. Strengthening institutions such as Invest Cyprus to monitor and evaluate investment outcomes was also recommended.

Beyond corporate taxation, the Council emphasized that fiscal policy must be leveraged to support the green transition, digital reform, research, innovation, and energy security. It suggested targeted tax incentives in these areas, alongside measures to encourage third-pillar pension savings in preparation for demographic challenges.

The Council also raised concerns about Cyprus’s heavy reliance on indirect taxes, warning that such measures disproportionately burden low-income households and may increase the need for additional welfare spending. It stressed that tax exemptions cannot replace well-designed social policies to protect vulnerable groups.

The Council reiterated that reforms must be fiscally sustainable, supporting growth without creating imbalances for future generations. On tax evasion, it acknowledged the necessity of stronger enforcement but insisted that new powers must be accompanied by transparent, cost-free appeal procedures to safeguard legality and prevent abuse.

Overall, the Fiscal Council concluded that Cyprus needs a balanced tax system—one that supports growth and competitiveness while remaining fair and socially acceptable. Given that this reform marks the most significant overhaul since 2002, it urged the government to go beyond tax adjustments and introduce broader policy measures to attract investment, reduce inequality, and secure long-term economic stability.