The overwhelming majority of workers—around 60% of the domestic labor force—earn an annual salary of up to €20,500 and do not qualify for taxable income deductions. As a result, they will not benefit from the upcoming tax reform.

The welfare-oriented and targeted aspects that were expected to shape the structure of the new tax system appear to be absent, despite repeated assurances, mainly from the executive branch, that this segment “would receive special attention.”

“I will not accept any deviation from the mentioned date—January 1, 2026,” President Christodoulides reiterated during yesterday's meeting at the Presidential palace. However, for workers’ organizations, the crucial aspect of the reform is not the implementation date but whether it meaningfully addresses low-income earners.

In contrast, the proposed increase in corporate tax from 12.5% to 15%, aligned with the OECD decision adopted by Cyprus, will bring in an estimated €250–€270 million annually to public coffers. As a counterbalance to this increase for businesses, the reform reduces the dividend tax from the current 17% to 5%.

For example, a business owner currently receiving €80,000 annually in dividends would pay €17,000 in taxes under the current system. With the new system, they would save around €10,000 annually.

The paradox is that workers earning less than €20,500 annually, and therefore ineligible for any tax deductions, will not receive a single cent from the €270 million in additional revenue generated by the corporate tax hike.

“If this distortion isn’t corrected, either by the Finance Ministry or Parliament, then this will be a tax reform for the wealthy,” a senior trade union official told Brief.

In a detailed report published last Sunday, Brief referenced Statistical Service data revealing that around 60% of workers earn about €1,500 monthly. During the meeting, there was no discussion about those not covered by the proposed increase in the income tax-free threshold.

During consultations between the CypERC team and trade unions—and later between the Finance Minister and social partners at the Economic Advisory Committee—when unions asked what would happen to the thousands of workers excluded from tax deductions, Finance Minister Makis Keravnos responded that targeted measures for them would come under the green taxation framework.

In addition to the corporate tax increase, other major changes include the abolition of the 1.5% insurance premium tax for insurance companies. There is also a proposal to tax cryptocurrencies, except when classified as capital gains.

Yesterday, the CypERC team and the Finance Ministry claimed the reform would significantly reduce the tax burden for households—by 63% to 82% for a typical middle-class family.

Proposed tax reliefs will apply based on total gross income, specifically for households with two working partners earning up to €80,000 annually. These include:

• €1,000 tax credit per spouse plus €1,000 per child under 19 or under 21 if studying.

• €1,000 per spouse plus €1,000 per student up to age 23 or 24.

• Up to €1,500 per spouse for home loan or rent payments.

• Single-parent families with one child will receive a €2,000 tax deduction.

The fiscal cost of these changes is projected at €150–€170 million from individual taxpayers and €230–300 million from reduced defense contributions. Expected revenues include €250–€270 million from the corporate tax increase, €80–130 million from other potential taxes, and €50–70 million from VAT/income tax returns.

The planned €1,000 increase in the tax-free income threshold, along with changes to tax brackets—such as applying the 35% rate to incomes over €80,000—will cost the state approximately €65 million.

The Tax Department is preparing four bills, expected to be completed by next Friday. The Finance Ministry will then review them before forwarding them to the Legal Service for legislative vetting. The finalized drafts will be submitted to the House of Representatives for discussion by the Parliamentary Finance Committee.

It is estimated that the bills will be voted on in the Plenary Session before the end of the current year.