February 26, 2025, marks a significant milestone for the Ministry of Finance, as the Economics Research Center of the University of Cyprus will present its tax reform proposals, following directives from the government.

The presentation will be attended by social partners, stakeholders, and members of parliament, initiating a public consultation process. This phase will allow organized groups and affected parties to voice their opinions before legislative proposals are drafted.

Subsequently, the proposed bills will undergo legal scrutiny, receive approval from the Council of Ministers, and be gradually submitted to Parliament, with full implementation targeted for 2026.

Before the broader tax reform takes effect, the government plans to introduce green taxation by May 2025. The Ministry of Finance is finalizing proposals, primarily focusing on compensatory measures. The government anticipates generating €100 million from green taxation, which will be redistributed to vulnerable groups, including low-income earners and pensioners.

A source from the Ministry of Finance told Brief that "the consultation process ensures that all stakeholders, including citizens, businesses, and organized entities, contribute to the adoption of the reform by expressing their views and suggestions based on the presented proposals and options."

Through this process, the government aims to gather, document, and utilize input from relevant parties before finalizing the legislation. Both government agencies involved in policy development and direct stakeholders will participate in shaping the final framework.

The proposed tax reform will focus on three primary areas:

1. Tax-Free Income Allowance – Supporting middle-income families.

2. Dividend Distribution Tax Reduction – Lowering taxes on retained earnings to enhance business competitiveness and investment.

3. Incentives for Digital and Green Transition – Encouraging investments in research, innovation, and sustainable projects.

Social partners have expressed concerns about the introduction of new fiscal measures, particularly carbon pricing mechanisms, which may generate additional public revenues.

For the first time, a fiscal framework will be established, ensuring businesses contribute their fair share while transitioning from labor-based taxation to environmental and wealth taxes. However, careful planning, social consensus, and strategic selection of taxation methods are crucial for achieving a just green transition.

The green tax reform is also expected to contribute significantly to emission reduction targets, accounting for a projected 12% reduction. Additionally, the policy will introduce landfill taxes and a carbon tax on transportation, addressing the sector's high contribution to CO2 emissions.