Cyprus plans to ask the cabinet to extend reduced excise duties on motor fuels until March 2027, Finance Minister Makis Keravnos has said, rejecting claims that higher value-added tax (VAT) receipts amount to “inflationary taxation”.

Speaking after a cabinet meeting at the Presidential Palace, Keravnos argued that stronger VAT collections reflect increased consumption and economic resilience rather than a higher effective tax burden. He also pointed to budget surpluses and declining public debt as safeguards against economic and geopolitical shocks.

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Fuel Tax Relief And Rising VAT Revenues

The current reduction in motor-fuel excise duty is due to expire at the end of November. Keravnos said the government would submit a proposal to extend the measure until March 2027.

Addressing criticism over rising VAT receipts, the minister noted that the government had reduced VAT on several categories, including essential goods and energy. Since consumption accounts for a significant share of Cyprus’ economy, stronger spending also generates higher tax revenues.

He added that household consumption is supported by disposable income, which the government seeks to protect through social policies and fiscal support. More than €1 billion has been allocated to cost-of-living measures.

Budget Surplus Provides Room For Further Support

Keravnos welcomed fiscal figures showing the government surplus had reached €1.61 billion, describing the result as evidence of responsible and preventive financial management.

He said budget surpluses and lower public debt help protect Cyprus’ investment-grade credit ratings while providing room to respond to unexpected costs. Recent examples include several million euros in emergency spending on the foot-and-mouth disease outbreak and wildfires in the Limassol district, neither of which had been included in the original budget.

Sound fiscal management also allows Cyprus to access international borrowing markets when needed while remaining within EU economic-governance rules, he added.

Energy Costs Keep Inflation In Focus

The minister acknowledged that the ongoing energy crisis is increasing costs for households and businesses and adding to inflationary pressure. He welcomed the European Central Bank’s decision not to raise interest rates further and said the government was monitoring prices and the cost of living to assess whether additional support might be necessary.

Cyprus is also awaiting the European Commission’s response to its request for a further reduction in the special excise duty on heating oil. Keravnos said initial indications were positive and that the government would continue to press its case.

He argued that EU restrictions on tax measures should take individual countries’ fiscal positions and growth prospects into account, pointing to Cyprus’ forecast economic growth of 3%. “We cannot accept these across-the-board restrictions,” he said.

Government Defends Public Investment Plans

Keravnos rejected claims that public investment and infrastructure spending were being reduced despite higher state revenues. He attributed delays in some projects to inherited problems and said the government was working to move them forward.

Describing the delays as temporary, he said the budget remained focused on economic growth and social policy. Social measures account for 23% of state expenditure, a share he described as unprecedented in previous budgets.

The minister was also due to attend meetings of the Eurogroup and the Economic and Financial Affairs Council (Ecofin), where energy costs and potential support measures were expected to feature on the agenda.