The University of Cyprus Economics Research Center is set to intensify its activities over the coming months, with a goal of completing a comprehensive study on the impacts of the ongoing tax reform by the end of November.

According to information obtained by Brief, the research team began in July to analyze the effects of the tax reforms on the economy, various sectors, different income classes, as well as on companies, investments, employment, productivity, competitiveness, and public finances.

The study employs economic models, tools, and econometric frameworks developed both by the Center and by similar research institutions within the European Union.

The analysis utilizes models such as Euromod, DSGE, Input-Output, and Demand System Equations to quantify the economic impacts. In cases where necessary data is unavailable, estimates will be based on multipliers from other countries, or qualitative assessments will be conducted.

Regarding the green reform, which constitutes a significant part of the tax reform, the research team reaffirms the proposals for the introduction of a carbon tax on electricity and fuels to manage climate change, in line with practices in other European countries.

The researchers, based on an econometric assessment of the impacts on consumer behavior and household welfare from the imposition of such taxes, are using microeconomic data concerning household consumption expenditures, preferences, incomes, and demographic characteristics in Cyprus. They are also evaluating the impact on the true cost of living for households.

Currently, the research team is studying the compensatory measures that will be provided to households to restore their financial situation to pre-tax levels. The alternative measures under consideration aim to ensure that the green tax reform has no negative distributional impacts and remains fiscally neutral.

It should be noted that without appropriate measures, households with lower incomes would face the greatest adverse effects.

An official source at the Ministry of Finance reiterated to Brief that the study will address issues related to the legal framework of corporate tax, income tax, capital gains tax, stamp duties, and other forms of taxation, with the aim of simplifying the tax system.

The source also confirmed that the new reform will focus on the green and digital transitions, as proposed in the Recovery and Resilience Plan and in line with the EU's tax policies.

According to the Ministry of Finance, the upcoming reforms will concentrate on:

1. Promoting investments that support policies to reduce business risk in a way that encourages innovation, investment, and competitiveness.

2. Shifting the tax burden from labor to consumption, green taxation, and real estate.

3. Implementing green taxation to achieve environmental goals by imposing taxes on polluting activities.

4. Combating the scourge of tax evasion and the shadow economy.