The Ministry of Finance estimates that following the hikes in the VAT standard rate and the increase in the reduced rate from 8% to 9%, VAT revenues will increase by just 0.6% or by €10 million over the VAT revenues in 2013 which reached €1.648 million due to the continued contraction of the economy in 2014, estimated at 4.8% of GDP.

Nayia Symeonides, a senior official in the VAT Service said the standard rate, to be increased to 19% covers approximately 80% of the goods and services whereas the reduced VAT rate covers restaurants and cafeteria services, catering services. Foodstuffs, medicine, water, fertilizers, animal food, books are taxed with 5% VAT. Symeonides noted however that despite the VAT hike Cyprus continues to have the third lowest VAT rate in the European Union, following Malta with 18% and Luxemburg with 15%. The government of the latter announced however it plans to raise the VAT rate. Furthermore, Symeonides said the Service, aware of the adverse financial conditions facing the country, is striving to work out settlements with companies that have VAT payments in arrears in a bid to give them the opportunity for gradual repayment.

Source: Financial Mirror