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IN AN apparent change of heart, the administration said yesterday it plans to ask the European Un ion’s consent to lower the VAT levied on electricity here from 17 to 8 per cent.

Less than a month ago, the government said there was no chance of that happening.

But during a session of the House Commerce Committee yesterday, Finance Ministry officials told MPs that the government would be requesting a consultation with the EU VAT Committee to discuss the matter.

It’s understood that the government’s proposal for a lower VAT rate applies to domestic users only.

‘This would reduce electricity bills for consumers by around 10 per cent,” said Commerce Committee chairman Lefteris Christoforou.

But given that the EU VAT Committee convenes next Monday, if the government doesn’t get its act together in time, it could miss the deadline to file its request for consultation, and the EU VAT Committee next meets three months from now.

At any rate, should the EU eventually give Cyprus the nod, the government could prepare legislation, although opposition politicians have already been busy drafting two separate legislative proposals. The first, by independent deputy Zacharias Koulias, provides for a VAT rate of 5 per cent across the board; the second, authored by DISY’s Averof Neophytou, would slash VAT to 8 per cent for domestic users and for farmers.

The Finance Ministry estimates that slashing VAT on electricity from 17 to 8 per cent would result in a loss of state revenues ranging from €25 million to €30 million.

Since VAT proceeds have been budgeted for the current year, the government would need to cut spending elsewhere or raise more revenues to make up for the shortfall.

Neophytou said that former Finance Minister Kikis Kazamias had promised to do just that.

Yet with global oil prices spiking in recent weeks, electricity rates (and thus taxation revenues) are expected to climb; the public electricity utility is still entirely dependent on heavy fuel oil for its power plants.

Meanwhile the government has promised parliament that by next week it will unveil measures geared at ‘economically vulnerable’ groups.

Currently, only large families are entitled to a special rate on electricity consumption, but the government intends to designate additional groups that would be eligible for a discounted rate, based on means-testing.

MPs pointed out, however, that charging certain groups less would mean transferring the difference to the general population.

The move to reduce VAT on electricity bills comes after months of hikes in levies including scheduled increases, rising fuel adjustments, a 6.96 charge to offset the cost of the Mari naval base blast, which destroyed the main power station last July, an increase in VAT by two percentage points on March 1, and last week’s approval by the House to up the charges added to bills to cover renewable energy. Consumers are also being charged a small fee to help vulnerable groups.

In all, extra charges had reached some 30 per cent of all EAC bills.

Source: Cyprus-Mail

By Elias Hazou

Published on March 21, 2012

|||Cyprus will seek EU approval to reduce VAT on electricity bills
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