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Omirou: reduction of tax on interest receivable

04/02/2015 12:08
Parliament President Yiannakis Omirou suggested reducing tax on interest receivable to 12.5% from 30% in order to allow the reduction of deposit rates and hence lending rates.

In his statement in parliament today, he also referred to the acceleration of restructurings and the extension of new loans through simplifying procedures and segregating loans according to their amount and type.

He stressed the need for strengthening development policies in order to enable the Cypriot economy to rebound in 2015.

Private debt problem

Mr. Omirou stressed that Cyprus has a serious private debt problem, with the total amount being 3.5 times larger than the country's GDP.

Bad practices of the past, he said, led to reckless credit expansion resulting in both households and businesses, being over-indebted.

Reduction of the cost of money

The immediate need to reduce the cost of money to give breathing space to borrowers was also stressed by the parliament president.

He noted that "banks grant loans through funds taken as deposits so lending rates are inextricably linked to deposit rates. The high rate of taxation applicable to interest receivable is one of the factors that maintain deposit rates at these levels. To this end it is proposed to reduce the tax on interest receivable from 30% to 12.5%. "

In such a development, he stressed, a reduction of interest rates would be allowed without government finances being significantly affected, since according to the latest figures there is an increase in deposits and a tendency to deposit money for a longer period.

There will be greater flexibility for banks to handle liquidity issues.

Administrative costs in the IRD which often spark disagreements, if interest receivable for a company is taxed based on corporate taxation or the extraordinary contribution, would be reduced.

Loans restructuring

Clearly, he said, that the problem of NPLs will be definitively resolved when the Cyprus economy shows significant growth rates and a flow of fresh money through investments in the country.

The directive of the Central Bank referring to restructuring and granting new loans requires the same process and the same support regardless of the amount of the loan.

There should be a simplified procedure for loans up to a specific amount, with most evidence being taken from the systems Ajax and Artemis.

Mr. Omirou suggested that banks should proceed with considering loan separation into the part that can be served and the part that the borrower is unable to repay.

The second part could be converted to a payment at once at a later time (balloon payment), he said.

He also suggested creating an NPL management company. Funding could come from the conversion of ELA in long term borrowing or through other mechanisms of ESM and ECB.

Problem with guarantors

Regarding the problem with the guarantors, he stressed that "we are not examining horizontal guarantors exemption, but if all the weight of borrowers is transferred onto guarantors, then they themselves guarantors will go into bankruptcy."

Development policies strengthened

With reference to quantitative easing by the ECB program, the parliament president noted that "the activation of Juncker’s plan adopted in December to boost growth is an immediate priority for the EU. The Cypriot and Greek governments should be coordinated in order to request its immediate activation".