The trade union movement has identified serious shortcomings in the upcoming tax reform, a study of which was undertaken and completed by the Economics Research Center of the University of Cyprus.

According to senior union officials speaking to Brief, the tax reform plan, which is already in the hands of the Ministry of Finance, shows critical deficiencies.

In particular, they stress the need for a socially fair tax reform, which, as they point out, should be the result of collective proposals and recommendations from all social partners.

The four trade union organizations participating in the Labour Advisory Body — SEK, PEO, DEOK, and PASYDY — believe there has been no substantial or adequate social dialogue regarding the social orientation of the tax transformation.

They argue that the middle class and workers whose annual salaries do not fall below the taxable income threshold have been left out of the reform equation. “There are serious gaps, mainly regarding the tax-free threshold, the proposed tax brackets, and tax deductions,” noted Andreas Matsas, Secretary General of SEK.

He added that there are no measures to ease the burden of indirect taxation, nor measures to increase tax revenues from sectors where such potential exists.

80% of Salaries Spent on Essentials with 19% VAT

Stelios Christodoulou, President of DEOK, reminded that the Troika, during the economic adjustment program, had demanded an increase in the VAT rate from 15% to 17%, and then to 19%.

Based on statistical data, the average worker spends about 80% of their salary on basic goods, he noted. “This means that a portion of their salary is absorbed by VAT,” he pointed out, adding: “Unfortunately, the proposed tax reform does not take this parameter into account, nor the fact that many thousands of private-sector workers do not receive COLA adjustments to at least maintain their purchasing power in the face of inflation.”

“Are we really talking about tax reform or tax deregulation?” wondered Mr. Christodoulou.

Renters Left Behind

The union movement also highlighted another dimension which, as they say, “is glaringly absent.”

This concerns households without primary residences who live in rental accommodation.

While tax relief was planned for households with mortgage loans for housing purposes, there is no relief foreseen for households that pay rent.

In addition, there are no policies included to broaden social protection, which are deemed necessary given the high cost of living and the upcoming green taxes.

A significant deficit was also observed in measures to tackle tax evasion and tax avoidance, which — according to University of Cyprus data — show a severe surge.

Less Dialogue, Less Democracy

All four unions strongly urged the government to strengthen and expand the social dialogue, through which a comprehensive, integrated, and socially fair tax reform can be designed and implemented.

"Less involvement of social partners in the dialogue on tax transformation means less democracy,” noted the SEK Secretary General.

As recently revealed by Brief, and citing data from the Statistical Service, around 60% of workers in Cyprus receive a monthly income of approximately €1,500.

This means that the overwhelming majority of workers, who make up about 60% of the domestic workforce and have an annual salary of up to €20,500 and are not exempt from taxable income, do not benefit from the current draft of the upcoming tax reform.