Fear and restrictive measures due to the coronavirus pandemic reduced Cyprus’ tax revenue in March by €80 million. In March 2019, €324.3 million ended up in government coffers compared to last month’s estimated €244.3 million.
In fact, tax revenue in March 2020 was lower than in March 2018 when it had reached a total of €310 million.
Over the recent past years, the Tax Department’s revenue in the month of March comes from VAT, direct taxation, including those of 2014 and 2015, as well as from the implementation of the overdue tax debt scheme.
Insiders told that the reduction of tax revenue, amounting to losses up to 25%, began after mid-March. In the early days of the virus, a number of government departments – including that of tax – stopped accepting cash payments so as to avoid overcrowding and physical presence.
This has resulted in no payments towards overdue taxes related to direct taxation which also provides for the interest and additional charges. However, interest-bearing taxes and charges cannot be paid online.
Meanwhile, due to the uncertainty that employees, business owners and the self-employed are feeling, a number of those who participated in the Regular Debt Tax Plan did not pay their March installments.
Most taxpayers did not pay their debts because they had predicted that payment of installments would be suspended for a couple of months, anyway – just like in the case of overdue social security contributions.
The tax department’s plan provides that, in case of non-payment of five installments, participants are automatically kicked out. The plan which was re-implemented in February will be completed by mid-August.
However, government circles are concerned over this development since the reduction in tax revenue has also affected other government departments.
A few days ago, Minister of Finance, Constantinos Petrides, informed members of the House Finance Committee that total government revenues had decreased by €100 million in March and that 80% of the state’s sources of revenue had been zeroed. Also, the bleak figures did not even cover the whole of March.
Authorities estimate revenue in April to also decline further since many employees have reduced income because of the Ministry of Health’s restrictive measures. Many companies are totally shut down, and others record a substantially reduced turnover.
Although many employees will be paid through benefits provided by the Ministry of Labour, it is a given that this income will go towards their livelihood and not towards state obligations. In an interview with Sunday’s Phileleftheros, the Finance Minister expressed fear that the reduction of state revenues in April will be way too high.
Fiscal Council intervention
At the same time, Fiscal Council President Demetris Georgiades has warned that the state needs to preserve its fiscal buffers. And that it must not spend all of its reserves early as no one can predict the extent of the coronavirus pandemic, he also told CNA.
“No one can predict how long this crisis may last and therefore we should preserve firepower,” he said.
“We should take into account where we could end up the day after the crisis is over, where public and private debt may end up,” he added.
He also said that both these metrics must be contained on a sustainable level and that government guarantees are more proper. Because the banks are a better place to provide loans as opposed to the state.
In addition, Georgiades noted that the state should set out rules on transparency and monitoring procedures to ensure that these loans are provided correctly and only to those hit by the crisis.