Breaking news

Government Tax Reform Fails to Address Structural Inequalities

Unfulfilled Potential In Economic Reform

The recent approval of the government budgets for 2026-2028 and an accompanying tax reform under President Nikos Christodoulides may have been touted as progressive steps towards modernizing Cyprus’ tax system. However, these measures fall short of catalyzing balanced and equitable economic growth. Rather than initiating substantive change, they primarily serve the interests of middle-income households and bolster the profitability of larger enterprises.

Short-Sighted Policies And Persisting Inequalities

The revisions criticized as making the tax system “fairer, more modern, and more competitive” hardly qualify as a robust reform. With soaring bank deposits and fiscal surpluses reaching €5.8 billion (as of November 2025), the government had the means to significantly reduce taxes on lower and middle-income earners and trim the VAT on essential goods and services. Instead, the tax reform maintains the status quo—perpetuating income disparity and failing to account for prolonged challenges such as inflation and demographic shifts.

Furthermore, current measures largely favor established public companies. Even with the corporate tax rate increase from 12.5% to 15% for firms exceeding €750 million in annual revenues, the reform offers generous concessions including the abolition of the deemed dividend distribution system, a reduction in tax on actual dividend payments from 17% to 5%, and the Notional Interest Deduction scheme which can drive effective rates as low as 2.5%.

Misplaced Incentives And Underutilized Resources

The reform’s emphasis on tax incentives for green, digital, and innovative ventures is a step in the right direction. However, these incentives are undermined by a broader fiscal policy that over-prioritizes investments in property development, construction, retail, and hospitality sectors—industries that inherently rely on low-wage, low-productivity labor. This imbalance is evident when comparing Cyprus’ labor costs of €21 per hour to the EU average of €33.5 per hour in 2024. Consequently, these policies foster an environment where wage suppression and resource allocation remain skewed in favor of established, profit-centric enterprises.

Policy Recommendations For A More Equitable Future

A more impactful tax reform should address both immediate fiscal imbalances and long-term socio-economic challenges. First, a commitment to index the tax-free thresholds, higher tax rates, and tax deductions to inflation at regular intervals (akin to practices in Germany) would help preserve real disposable incomes over time.

Second, to mitigate escalating wealth inequalities—where the top 10% of income earners now command over 66% of net wealth—it is imperative to reinstate a progressive annual tax on the updated market value of immovable properties. This measure would serve to broaden the tax base and promote a fairer distribution of economic benefits.

Conclusion: A Missed Opportunity

While the tax reform introduces attractive incentives for innovation and competitiveness, its overall structure continues to support resource distribution that benefits entrenched interests. By failing to realign investments toward sectors that nurture productivity and decent job creation, Cyprus risks entrenching low-income dynamics and widening the wealth gap further. The government’s fiscal strategy must evolve to ensure a truly modern, competitive, and inclusive economy that elevates living standards for all its citizens.

Bank Of Cyprus Named Cyprus’ Best Digital Bank By Euromoney

Bank of Cyprus has been named Cyprus’ Best Digital Bank at the Euromoney Awards for Excellence 2026, recognising the lender’s digital banking developments during the review period from January 1 to December 31, 2025.

Digital Banking Expansion

During the year, the bank integrated Fleksy, Cyprus’ first buy now, pay later service, into its digital banking platform. It also expanded Joey, its youth banking app, by adding savings and goal-setting features and enabling transfers between Joey accounts.

Bank of Cyprus also extended QuickAccount to support sterling and US dollar accounts. In addition, it launched what it said was Cyprus’ first fully digital housing loan, expanding its digital offering beyond day-to-day banking services.

The bank said it now has more than 500,000 active digital users.

Focus On Customer Access

“Enabling our customers to access the financial products and services they need with ease at any time is at the core of our digital strategy,” Chief Digital Officer Demetris Nicolaou said. “It is an honour for the bank to be named the winner of Cyprus’ Best Digital Bank at the Euromoney Awards for Excellence 2026.”

The recognition follows the Euromoney Private Banking Awards 2026, where Bank of Cyprus retained its titles as Best Private Bank in Cyprus and Best for High-Net-Worth Individuals in Cyprus for a second consecutive year.

Wealth Management Growth

Euromoney also cited growth in advisory services, digital initiatives and a 36% increase in assets under management during the review period as factors supporting the bank’s private banking awards.

eCredo
Aretilaw firm
The Future Forbes Realty Global Properties
Uol

Become a Speaker

Become a Speaker

Become a Partner

Subscribe for our weekly newsletter