Cuts to VAT and fuel taxes as Middle East conflict drives inflation response
Cyprus has moved quickly to shield households and key sectors from rising prices linked to the ongoing Middle East conflict, with a €200m support package combining VAT cuts, excise reductions and targeted subsidies.
Follow our VAT cut inflation tracker to see what other countries are doing.
VAT cuts target energy and food inflation
The headline measure is a sharp reduction in electricity VAT to 5% for domestic consumers, effective from 1 May 2026 through to 31 March 2027. This is a direct attempt to dampen household energy bills as regional instability pushes up input costs.
Food inflation is also in scope. VAT on meat, poultry and fish will be reduced to 0% between 1 April and 30 September 2026, extending existing zero-rating already applied to fruit and vegetables. The move broadens essential goods relief and signals a wider cost-of-living intervention.
Read more background in our Cyprus VAT guide.
Fuel measures go beyond VAT
Cyprus is pairing VAT relief with fuel duty cuts. Excise on motor fuels will fall by 8.33 cents per litre from April to June 2026. In parallel, the government has cancelled a planned Green Tax that would have added a further 9 cents per litre.
This combined approach highlights a broader policy trend: indirect tax levers are being used aggressively to counter imported inflation, particularly where energy prices are politically sensitive.
Wider economic support package
Beyond indirect tax, Cyprus is supporting impacted sectors directly. Hotels operating through April will receive a 30% wage subsidy, while airlines will be supported to maintain connectivity with key tourism markets. Farmers will benefit from 15% subsidies on fertilisers and other inputs during April and May.
VAT as a rapid-response tool
Cyprus joins a growing list of countries using VAT and excise adjustments as short-term stabilisation tools. The measures are time-bound, targeted and clearly linked to inflation shocks rather than structural reform.
