The government has secured parliamentary backing for a tax reform package after Finance Minister Makis Keravnos reached an agreement yesterday with the governing coalition parties DIKO and DEPA, as well as DISY.
The deal, which will cost the state an estimated €110 million annually, raises the tax-free threshold to €22,000 and extends tax relief to families with annual incomes up to €200,000 depending on the number of children.
The government secured the required majority to pass a tax reform that satisfies it on most points, whilst the coalition parties and DISY gained the right to present the final touches as their own initiative, with the corresponding political benefit in the midst of an election campaign.
For the coalition, it is the second government boost after the recent cabinet reshuffle that brought senior party figures into ministerial posts, with the exception of EDEK.
Following yesterday’s development, the tax reform is considered certain to take effect from 1 January 2026.
Most of the changes agreed yesterday with the finance minister will be incorporated into the bills through party amendments rather than revised government legislation.
The only change coming directly from the government side will be tax relief for certain groups of taxpayers with family income up to €90,000, instead of up to €80,000 as the current bill provides.
What was agreed
Negotiations between the government and the parties began last Monday in parliament and continued at yesterday’s meeting at the finance ministry, resulting in the following agreement:
The tax-free threshold will increase from the €20,500 proposed by the government to €22,000 — €1,500 more than the original plan. Raising the tax-free threshold increases the cost to the state by €45 million. The current tax-free threshold is €19,500.
The ceiling for annual incomes eligible for tax relief — linked to the number of children — will increase on a sliding scale. The change broadens the number of beneficiaries who will gain from additional tax deductions.
According to information obtained by Phileleftheros, for a family with one child, the annual family income allowing tax relief rises to €90,000. For two children, annual family income rises to €100,000. For families with three or four children, annual income rises to €150,000, whilst the ceiling rises to €200,000 for large families with more than five children.
The amounts of tax deductions granted for children and students in a family (up to age 23 for women and up to 24 for men) will increase on a sliding scale.
For a family with one child, the tax deduction remains at €1,000, as provided in the government bill. For a family with two children, the tax deduction increases to €1,250 per child. For families with more than three children, the deduction will be €1,500 per child.
The deduction for interest rises to €2,000, which will be granted for serviced housing loans and for rent. The original bill provided for a deduction of €1,500 for this category. The deduction for green investments in homes and for buying an electric vehicle remains at €1,000.
Tax brackets are changing. For incomes from €22,001 to €32,000, tax will be 20%. Incomes from €32,001 to €42,000 will be taxed at 25%.
Annual earnings from €42,001 to €72,000 will face a tax rate of 30%. Incomes above €72,001 will be subject to 35% taxation.
The bills currently provide for raising the tax-free threshold to €20,500 and widening tax brackets, with income from €20,501 to €30,000 taxed at 20%, €30,001–€40,000 at 25%, €40,001 to €80,000 at 30%, and income above €80,000 at 35%.
Through the party amendments, in some cases involving thousands of taxpayers, the president’s pre-election pledge to raise the tax-free threshold to €24,000 will be satisfied through the deductions.
The parties will also proceed with filing an amendment to abolish stamp duty, from which the state currently collects €35 million, whilst the government proposal provided for revenue of €20 million.
Anti-tax evasion measures
The government is setting terms and conditions for the changes. A prerequisite for the finance ministry to accept the amendments is that parties will not touch — that is, will not weaken at all — the anti-tax evasion measures and anti-abuse clauses included in the bills.
The government proposals have already been enriched with safeguards for specific tools that the tax department will have at its disposal, concerning the sealing of businesses with tax arrears, the freezing of shares for debts exceeding €100,000, and so on.
Yesterday, Finance Minister Makis Keravnos said the ministry would accept an increase in the tax-free threshold and the sliding scale increase in income criteria, adding that “especially for five children and above, the limit increases to provide relief up to €200,000”.
He also said they agreed with the parties to abolish stamp duty. “There was great convergence of views, and I expect that within the parameters the government has accepted, amendments will be submitted by the parties so we can proceed with tax reform,” he added. He assured that the changes are within the state’s fiscal capacity.
Party consensus
Economics Committee chair and DIKO deputy president Christiana Erotokritou said she welcomed the finance minister’s positive stance on the amendments to be filed by the parties, adding that DIKO seeks consensus and cooperation on economic issues.
She concluded that with the tax reform, Cyprus will continue to remain an attractive business centre.
DISY MP Onoufrios Koulla said that for there to be a positive result for Cyprus, there needs to be a parliamentary majority and government consensus.
“We are moving in a common direction for the good of the economy, improvements for citizens with priorities to support the middle class and families with students, and to maintain a favourable business environment,” he added.
DEPA MP Alekos Tryfonidis noted there was convergence on the amendments, which will help low-wage earners, the middle class, low-income pensioners, and single parents, and generally support businesses.
The amendments are within fiscal frameworks and do not endanger the country’s economy, he said.
Surprise and dissatisfaction from the rest
The DISY, DIKO, DEPA — and EDEK — alliance caused surprise and dissatisfaction among the other parliamentary parties, as they believed their amendments moved in the same direction.
AKEL party officials expressed dissatisfaction at being left out of the meeting. The common formula reached yesterday by some parties with Keravnos approaches AKEL’s own amendments, sources said.
ELAM MP Sotiris Ioannou told Phileleftheros that the amendments the government accepted were proposed by ELAM to the minister last September.
He said they had proposed a sliding scale increase in the annual income ceiling and sliding scale granting of deductions depending on the number of children.
Movement of Ecologists’ president Stavros Papadouris also expressed strong displeasure, characterising it as a mistake not to invite all parties to yesterday’s meeting. He said many of the proposals agreed upon had also been proposed by the movement.
The finance ministry said yesterday’s meeting was not initiated by the minister but by the parties that participated in the conference.