Overview Of The Evolving Tax Reform

The initial approval of the tax reform appears imminent, yet coalition parties are actively pushing for additional amendments beyond the agreed-upon changes aimed at easing household tax burdens. While core modifications by the coalition have found consensus, several extra proposals promise to reshape the reform significantly.

Agreed-Upon Adjustments And Their Fiscal Impact

Since the introduction of draft bills in July and subsequent public consultations, approximately 30% of the reform’s content has been modified through discussions between the government and various stakeholders in Parliament. The majority of these adjustments are welcomed by the Ministry of Finance despite concerns about other proposed modifications.

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The key agreed changes, which will impose an additional fiscal cost of €110 million on state coffers, include:

• An increase in the tax-free allowance to €22,000.
• Adjustment of income thresholds required to qualify for further deductions, varying according to family composition – for instance, a single child qualifies for these thresholds at an income of €90,000; the thresholds rise to €100,000, €150,000, and €200,000 for two, three or four, and five or more children, respectively.
• Enhanced allowances for taxpayers paying rent for children and students, with deductions ranging from €1,000 to €1,500 based on the number of dependents.
• An increase in deductions to €2,000 for interest on housing loans and rental expenses.
• A revised tiered taxation structure: incomes between €22,001 and €32,000 will be taxed at 20%, incomes from €32,001 to €42,000 at 25%, incomes from €42,001 to €72,000 at 30%, and amounts over €72,001 at 35%.

Additional measures include a €1,000 incentive for green investments in residential properties (such as photovoltaic systems) and for the purchase of electric vehicles, as well as the anticipated elimination of the stamp duty fee in line with the coalition’s joint proposal.

Controversial Amendments And Risks Of Non-Taxation

Among the more contentious proposals is the non-taxation of investment activities conducted by welfare funds, set at a rate of 15%. Despite reservations from the Ministry of Finance, which argues that uniform taxation is essential for fair competition, coalition parties defend this amendment by citing that the resulting benefits primarily accrue to fund members. A memorandum from the State Aid Control Office warns that continued non-taxation could expose the nation to challenges from Brussels.

Corporate And Wealth Tax Proposals

The Democratic Rally (DI SY) has advanced several technocratic amendments aimed at clarifying legislation on corporate taxation. Notable proposals include:

• Eliminating the tax relief on additional income so that such income is definitively taxed by the Tax Authority.
• Exempting companies from the mandatory study of intra-group transactions to reduce administrative burdens, particularly for significant service purchases (over €2.5 million), goods acquisitions (€5 million), and financial transactions (€10 million).
• Raising capital gains tax exemptions for property sales – for instance, increasing the exemption to €50,000 for agricultural land, €150,000 for primary residences, and €450,000 for commercial properties.
• Opposing a clause that compels property buyers to certify the absence of any tax liabilities, which DI SY argues would unnecessarily elevate administrative costs.
• Calling for clearly defined conditions under which tax confidentiality can be waived by the Tax Authority, possibly requiring oversight by the Chief Public Prosecutor.

Meanwhile, AKEL is championing measures to tax wealth through luxury levies. Their proposals include raising the tax-free threshold to €22,500 and instituting higher rates for top earners – 35% for incomes between €72,000 and €102,000, and a steep 45% for earnings exceeding €102,000. They also advocate for measures such as a 0% VAT on essential additional goods and a tiered surcharge on high-value property and corporate assets, with pending legislation on banking super-profits and renewable energy firms.

Sector-Specific Modifications: ELaM And The Ecologists

ELaM has put forward amendments to extend tax allowances for dependent children until the age of 25, remove income limits based on the number of children, and allow the transfer of unused allowances between spouses when one’s income is below €20,500. Additionally, proposals concerning the agricultural sector aim to exempt farmers from certain levies.

The Ecologists have suggested further relaxations, notably increasing exemptions on capital gains – raising the exemption for the sale of a residence to €30,000 (from €20,000), for agricultural plots to €50,000 (from €30,000), and for main residences to €150,000 (from €100,000). They also recommend that rental payments be processed via bank transfers for tax recording purposes and propose adjustments to tax brackets to better reflect modern income distributions.

Next Steps In The Legislative Process

A parliamentary committee on economic affairs is scheduled to reconvene on Thursday and Friday to deliberate on these supplementary amendments. The comprehensive draft of the tax reform is expected to be submitted for final approval on the 22nd of this month, marking a critical juncture in the nation’s fiscal policy overhaul.