Cyprus: Revenue Losses Exceed 25% Due to Reduced VAT

Cyprus is experiencing significant revenue losses, exceeding 25%, due to reduced value-added tax (VAT) rates, according to the EU's Annual Report on Taxation 2024. Cyprus records the second-largest decrease in the EU.

Reduced VAT rates impact revenue, creating a 'VAT policy gap.' Simulations indicate this gap reduced VAT revenue from households by approximately 16% in the EU in 2019.

Furthermore, the report states that compliance audits by tax administrations increased total tax revenue for the EU-27 by an average of 2.2% in 2022. In Cyprus, audits increased revenue by more than 10%.

The tax revenue index in Cyprus as a percentage of GDP is 37.7% for 2025, while expected increases in pension system revenue are mainly due to increases in employee social contributions.