February fuel inflation prompts VAT cut
The Cyprus government has implemented a temporary cut in the Value Added Tax rate on petrol from the standard rate to 5%. A power consumption rate cut was already in place to 9%, and this has been extended.
The tax cut will cost the government €40 billion. Cyprus is the latest EU state to cut electricity VAT rates.
Cyprus inflation reached 6.6% in February 2022. This includes spikes in petroleum (28.4%), electricity (22.4%) and agricultural (17.5%).
9% power VAT rate cut to help soften inflation now extended
At the end of 2021, Cyprus cut domestic supplies of electricity from the standard VAT rate of 19% to the reduced rate of 9%. This was initially from 1 November 2021 until 30 April 2022 for supplies under Domestic Use Tariff Codes 08 and 56. There is a separate rate cut to 9% between 1 November and 31 January for electricity supplies at peak hours (Domestic Use Tariff Codes 01, 02 and 56).
Electricity prices are hitting record highs across the EU due to the global economy reopening after the COVID-19 lockdowns, plus interuptions in supplies of natural gas from Russia and elsewhere in the supply chain.
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EU VAT rate setting freedoms
At the end of 2021, EU agreed reduced VAT rate setting freedoms. This includes to cut rate below 5% for the first time on a limited range of supplies. This is due to by submitted for a non-binding vote in the EU Parliament of 2025 implementation. Although member states may introduce the legislation immediately.