The Cyprus government will try to get an extension on the imposition of VAT on certain good and services, the deadline for which currently is on January 1, 2008, the same date Cyprus is set to enter the eurozone.
Political parties are concerned that raising VAT levels on certain products may confuse the public who will be in the process of getting to grips with a new currency, while also encourage profiteering among retailers. One of the two conditions set by opposition party DISY before giving its backing to the euro was that the government would not introduce the new VAT rates at the same time as the single European currency.
As things now stand, Cyprus is committed to adding 5% VAT on food products and medicines, which are currently 0%, by the first day of 2008. A 15% VAT on immoveable property, which is now 0%, is also due by January 1 2008.
According to a Finance Ministry source, the government is optimistic it can get an extension from the Commission on the new VAT levies but is in no position of knowing how the EU body will react. There has been no intimation from Brussels which way the decision will go.
A lot depends on how well the Cyprus economy does on the road to euro adoption. Nothing can be examined properly until the Cyprus pound is locked into the euro in July. The source highlighted that it was a very delicate matter which had to be handled with care as the EU was not prone to giving out such extensions easily.
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