17/09/2003 01:16
The Cyprus government committed itself through the Pre-Accession Economic Program submitted to Brussels to limit defense expenditures to CYP 70 million. In the 260-page document, the Finance Ministry has set an annual ceiling of CYP 70 million on defense expenditures for the next three years, which is significantly lower that the original estimates of CYP 120 million and CYP 90 million in 2002 and 2003 respectively.
In the revised PEP for 2004-2006, the government explained that the difference between the estimates on the fiscal deficit (1.9%) and the actual fiscal deficit (5.4%) for 2003 was largely attributable to the increased defense expenditures. “Defence outlays in 2002 reached the high level of £166 mln compared to the original estimate for the same year of £120 mln. A similar situation is expected to occur this year where defence outlays are estimated to be sustained at the 2002 level comparing unfavourably with the original provision of £90 mln for 2003”.
Fiscal consolidation with 15 measures
The government has also committed to take 14 additional measures to reduce fiscal deficit to 3.7% for 2004. The 14 measures are divided in four categories: the measures that concern the improvement of tax compliance, those for strengthening of the tax-collection, the measures for the increasing state revenues and those for constraining expenses.
The tax compliance improving measures are the following:
1) Compulsory use of cash registers with a tax memory
2) Compulsory issue of receipts for the purpose of VAT
3) Upward revision of the fines and penalties imposed for non compliance with direct and indirect taxation laws
4) Tax concessions to persons who have not declared/disclosed their income in the past, with the aim of raising future compliance
5) Tax concessions to persons who will declare the capital they have exported from Cyprus over the years. With the aim of raising future compliance
The measures will be adopted by the end of 2003.
Tax administrative improving measures:
1) Automatic exchange of information between the Income Tax Department, Social Security Funds, Customs and Excise – VAT Service and the Office of the Registrar of Companies and Official Receiver
2) Implementation of tax self assessment by employees of the general government sector, semi government organisations and domestic deposit money barks
3) Increase of the VAT rate levied by the restaurants and hotels with the simultaneous abolition of the Cyprus Tourism Organisation tax rate of 3%
4) Electronic submission of tax returns via the internet
The first three measures will be enforced by the end of 2003. The electronic tax returns through Internet will be adopted no later than mid-2004.
To boost the state revenues, the government intends to revise the service duties offered by the Ministries and the government departments by the end of 2003.
To restraint the state expenditure, the government has committed to:
1) Reexamine the functions of specific departments with the aim of contracting out the services they have been providing over past years e.g. Public Works Department, Water Development Department
2) Set annual expenditure ceilings on defence outlays over the period of 2004-2006
3) Eliminate fully subsidies
According to estimates outlined in the PEP, the improvement of the tax-collection ability of the state will bring about revenues of 1.3% of GDP until 2006, while the increase in duties will bring about more than CYP 60 million to the state funds. The restraint of expenditures will reduce the current expenditure by 2% of GDP until 2006.
It is noted that the fiscal deficit might shoot to 6.4% of GDP by 2006 if the anticipated policy outcomes do not match government expectations.
Growth rate
The Finance Ministry estimates that the Cyprus GDP will grow with a rate of 4% in 2004, 4.6% in 2005 and 2.6% in 2006 against 2% in 2002 and 2003. In case that the economic recovery for the next few years is weaker than expected, the fiscal deficit will increase. According to the pessimistic scenario of the Ministry, if growth rate stands at 3.5%, the fiscal deficit will reach 3.9% against the forecast of 3.7% for 2004.
In the revised PEP for 2004-2006, the government explained that the difference between the estimates on the fiscal deficit (1.9%) and the actual fiscal deficit (5.4%) for 2003 was largely attributable to the increased defense expenditures. “Defence outlays in 2002 reached the high level of £166 mln compared to the original estimate for the same year of £120 mln. A similar situation is expected to occur this year where defence outlays are estimated to be sustained at the 2002 level comparing unfavourably with the original provision of £90 mln for 2003”.
Fiscal consolidation with 15 measures
The government has also committed to take 14 additional measures to reduce fiscal deficit to 3.7% for 2004. The 14 measures are divided in four categories: the measures that concern the improvement of tax compliance, those for strengthening of the tax-collection, the measures for the increasing state revenues and those for constraining expenses.
The tax compliance improving measures are the following:
1) Compulsory use of cash registers with a tax memory
2) Compulsory issue of receipts for the purpose of VAT
3) Upward revision of the fines and penalties imposed for non compliance with direct and indirect taxation laws
4) Tax concessions to persons who have not declared/disclosed their income in the past, with the aim of raising future compliance
5) Tax concessions to persons who will declare the capital they have exported from Cyprus over the years. With the aim of raising future compliance
The measures will be adopted by the end of 2003.
Tax administrative improving measures:
1) Automatic exchange of information between the Income Tax Department, Social Security Funds, Customs and Excise – VAT Service and the Office of the Registrar of Companies and Official Receiver
2) Implementation of tax self assessment by employees of the general government sector, semi government organisations and domestic deposit money barks
3) Increase of the VAT rate levied by the restaurants and hotels with the simultaneous abolition of the Cyprus Tourism Organisation tax rate of 3%
4) Electronic submission of tax returns via the internet
The first three measures will be enforced by the end of 2003. The electronic tax returns through Internet will be adopted no later than mid-2004.
To boost the state revenues, the government intends to revise the service duties offered by the Ministries and the government departments by the end of 2003.
To restraint the state expenditure, the government has committed to:
1) Reexamine the functions of specific departments with the aim of contracting out the services they have been providing over past years e.g. Public Works Department, Water Development Department
2) Set annual expenditure ceilings on defence outlays over the period of 2004-2006
3) Eliminate fully subsidies
According to estimates outlined in the PEP, the improvement of the tax-collection ability of the state will bring about revenues of 1.3% of GDP until 2006, while the increase in duties will bring about more than CYP 60 million to the state funds. The restraint of expenditures will reduce the current expenditure by 2% of GDP until 2006.
It is noted that the fiscal deficit might shoot to 6.4% of GDP by 2006 if the anticipated policy outcomes do not match government expectations.
Growth rate
The Finance Ministry estimates that the Cyprus GDP will grow with a rate of 4% in 2004, 4.6% in 2005 and 2.6% in 2006 against 2% in 2002 and 2003. In case that the economic recovery for the next few years is weaker than expected, the fiscal deficit will increase. According to the pessimistic scenario of the Ministry, if growth rate stands at 3.5%, the fiscal deficit will reach 3.9% against the forecast of 3.7% for 2004.
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