The Economics Research Center (CypERC) of the University of Cyprus is in the advanced stages of preparing a comprehensive tax reform. By February 2025, professional bodies, trade unions, employer organizations, and other stakeholders will be briefed on the progress and invited to share their views.

According to Brief sources, the CypERC has already completed 10 out of 15 phases of the reform process. The main goals of the reform include:

• Simplifying the tax system and reducing compliance costs.

• Shifting part of the tax burden from labor to other forms of taxation, such as consumption, green taxation, and property taxes.

Green taxation is a priority area, with the CypERC emphasizing its potential to drive environmental goals by imposing levies on polluters while providing incentives for sustainable practices.

However, the impact of green taxation on low-income groups remains a concern. To mitigate disproportionate effects, the CypERC proposes introducing compensatory measures.

The reform also targets addressing tax evasion and the shadow economy, which represents a significant share of Cyprus’s GDP. Stakeholders eagerly await proposals on these pressing issues.

The Ministry of Finance views the reform as essential for ensuring the medium- and long-term sustainability of public finances. Key considerations include:

• Managing aging demographics.

• Adapting to shifts in the labor market, both of which adversely affect fiscal stability.

The CypERC’s approach prioritizes efficiency, redistribution, and administrative feasibility. The reform will consider the tax system holistically, avoiding piecemeal solutions.

To assess the potential impacts of proposed reforms, the CypERC employs advanced economic models, econometric tools, and tax systems from other European countries. These tools help estimate effects on:

• The economy.

• Households across income brackets.

• Companies in various sectors.

• Investment, employment, productivity, competitiveness, and public finances.

The reform, which began with a 24-month deadline, will also quantify the effects of proposed tax scenarios on different aspects of the economy.