The scope for reducing taxes on energy costs and the planned increases in tobacco taxes were the focus of the discussion on the “Alpha News” program. Economist Tasos Yiasemidis explained the restrictions imposed by the European Union, as well as the unique challenges facing Cyprus.
Referring to the European tax framework, Mr. Yiasemidis clarified that direct taxation falls under the jurisdiction of member states, provided that the fundamental principles of the European Union—such as the free movement of capital and persons and the prohibition of discrimination—are observed. “As far as direct taxation is concerned—that is, taxation of individuals or legal entities—it is entirely within the purview of the national government,” he said, noting that different rules apply to indirect taxes, where harmonized European rates are in effect.
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Regarding VAT and excise taxes, he explained that European legislation sets minimum permissible tax rates, with the standard VAT rate not allowed to fall below 15%. When asked about the possibility of further reductions in electricity and fuel prices, he noted that deviations from the prescribed minimum thresholds require special European approval and are generally temporary in nature. At the same time, he referred to the different regulations in effect between Cyprus and Greece, due to the specific conditions established upon their accession to the European Union.
Special mention was made of the planned increase in tobacco taxes, with the economist explaining that European policy is based on four key pillars: the smooth functioning of the single market, the fight against illicit trade, the bolstering of government revenue, and the protection of public health. “When excise taxes are raised, this acts as a disincentive for people to purchase those specific goods,” he said. He also explained that the current European framework sets a minimum excise tax of 90 euros per 1,000 cigarettes, with Cyprus sitting slightly above that level, while a 19% VAT rate is also applied.
However, Mr. Yiasemides emphasized that Cyprus faces an additional challenge due to the occupied territories. “In Cyprus, there is another factor to consider. It is the issue of the occupied areas,” he noted, highlighting the risk of an increase in the illicit trafficking of tobacco products in the event of a significant rise in prices in the free areas. As he noted, the repeated detection of illicit shipments by the Customs Department underscores the need for more intensive controls.
Finally, referring to the recent ECOFIN discussions, he explained that Malta was the only member state that did not support the compromise proposal on the new tobacco tax, expressing reservations about the potential economic repercussions. Cyprus has accepted the compromise proposal; however, its implementation requires unanimity among the member states. “Without approval from all, it cannot be implemented,” he emphasized, clarifying that negotiations are ongoing and that a potential significant tax increase could lead to a noticeable rise in the price of cigarettes.
