9.6% June inflation prompts powers to further cut VAT
The Cypriot parliament has voted through powers to enable VAT to be cut on petrol products, domestic electricity and fuel until 31 December 2022. The ruling government may look to challenge its obligation to adopt the tax changes and a legal battle looks set.
June’s inflation reached 9.6%, including inflation on oil and heating in excess of 40%.
Prior cuts due to end August 2022
This inflation burst had prompted the government to extend the reduction of Value Added Tax rate on domestic electricity. It was first cut at the end of 2021 from the standard rate of 17% to the reduced rate of 9%. The less well off will benefit from a 5% rate on electricity.
European VAT inflation cuts has been widespread since the end of 2021 when inflation began to rise.
Petrol duties had also been capped. These tax cuts were due to end at the end of June 2022 (see below). They were rolled over until 31 August 2022.
February fuel inflation prompts VAT cut
The Cyprus government had 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.
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
In April 2022, 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.