Cyprus: weak tax administration and prolific tax evasion
– Tax evasion in Cyprus is defined as the deliberate non or underpayment of taxes and is illegal, while tax avoidance involves using legal methods to minimize tax owed.
– Weak and ineffective tax administration in Cyprus contributes to large-scale tax evasion.
– The Tax Department’s primary goal is to collect taxes and enforce payment in accordance with tax laws.
– Tax collections in Cyprus are below potential, with a significant shortfall attributed to widespread tax evasion.
– It is difficult to quantify tax evasion levels, but as of end-September 2023, taxes owed to the state amounted to €3.4 billion, with nearly €900 million deemed uncollectible.
– Self-employed persons in Cyprus paid on average €1,080 in personal income taxes in 2022, compared to employees who paid on average €1,920.
– Tax evasion and avoidance deprive the government of revenue, limit the scope for reducing tax rates, and hurt honest taxpayers.
– Cyprus’s reputation for weak law enforcement and corruption attracts corrupt politicians and criminals from abroad.
– The inefficiency of Cyprus’s tax administration contributes to tax evasion, with personal income tax returns taking about five years to process.
– The government has been promised €24.2 million from the EU’s Recovery and Resilience fund to improve tax administration efficiency.
– Increased digitalization and coordination between tax units could help curtail tax evasion and avoidance.
– Simplifying the tax registration and filing process could encourage greater tax compliance.
– Government policies that delay the submission of tax returns and payments foster tax evasion and avoidance.
– Enhanced digitalization of public services and harsh penalties for late tax payments are suggested to enforce timely tax payment and compliance.
