VAT on housing may be lowered by lawmakersLowering VAT on housing is being discussed by lawmakers

Lawmakers on Monday once again discussed the reduced VAT rate on housing, and according to media reports, the government is set to go back to the draft and present a new bill to parliament just after the Easter holidays.

The discussion in the finance committee was closed. According to media reports, the government's new proposal will include an increase in the cost of residential properties eligible for the reduced VAT rate of 5 percent. The normal rate is 19 percent. For houses, the values allowing them to receive the reduced VAT rate will be increased to just under €400,000, and for apartments to just under €230,000.

The MPs later told the media that the government would present a reworked text of the bill to parliament after the Easter holidays. If it does not satisfy the parties, they still have the right to make their own amendments before putting the legislation to a vote in the plenum.

This comes amid the threat of sanctions from the European Commission. Brussels has initiated infringement proceedings against Cyprus but has yet to issue a reasoned opinion. A reasoned opinion is the second stage, a formal request to the national government to comply with EU law. If a country still fails to meet the deadline, usually two months, the Commission may decide to refer the case to the European Court of Justice. In practice, most cases are settled before going to trial. In the worst case, Brussels could penalize the country for non-compliance.

The infringement procedure was reportedly launched in the summer of 2021.

The policy was also outlined when it was revealed that recipients of the 'golden passport' program who invested in real estate in exchange for citizenship also benefited from a reduced VAT rate.

The government had earlier proposed a "golden mean" - a bill changing the levy of the reduced VAT rate of 5 percent on housing. According to this government proposal, the reduced VAT rate will apply to the first 170 square meters of housing with a total area of 220 square meters and costing up to 350,000 euros. For apartments below, the rate will apply to the first 90 square meters of housing with a total area of 110 square meters and a value of up to 200,000 euros. In addition, a special article stipulates that the criterion of total area does not apply to persons with disabilities.

The idea, however, faced strong opposition from several organizations - the Federation of Employers and Industrialists, the Chamber of Commerce and Industry, the Cyprus Association of Land and Property Owners and the Association of Property Appraisers. They instead proposed to increase the value of eligible properties - both residential homes and apartments. And they pointed out that with current inflation and the rising cost of building materials, no one will be able to find a home or apartment with the square meters and value stated in the law, making the legislation meaningless.

The law currently provides for the application of a reduced VAT rate of 5 percent for the first 200 square meters of the main dwelling without any restrictions. This reduced rate applies regardless of the income, assets, or economic conditions of the person or family residing in the home. In addition, the total area of the house is irrelevant.