| NICOSIA, March 11
NICOSIA, March 11 Cyprus is inching towards
hiking its corporate tax rate in an attempt to stave off IMF
pressure for investors to take losses on bank deposits to pay
for a bailout that would avert the sovereign default.
Corporate tax, now at a nominal 10 percent and among the
lowest in the European Union, was previously considered a no-go
area for authorities.
But it may be one of two lesser evils if the International
Monetary Fund sticks to its guns for granting up to 17 billion
euros in aid with the European Union, sources close to
consultations told Reuters on Monday.
Government officials have been dropping hints Cyprus's
resistance to an increase in tax may be waning in the face of
what is seen as a more serious threat, that bank depositors be
called to pay the cost of aid via a so-called haircut, in a
process known as a bail-in.
Cyprus says any impact on deposits is out of the question.
"At the end we will look at the pros and the cons, lay out
priorities then decide what measures can be taken which are not
destructive for the promotion of growth," said Averof Neophytou,
deputy leader of the ruling Democratic Rally party.
Cyprus needed to make some choices because a bailout accord
is needed to avert bankruptcy, he told state radio when asked
whether an increase in corporate tax might be on the cards.
A corporate tax increase - its last major adjustment was
before Cyprus joined the EU in 2004 - a temporary capital gains
tax and application of a financial transaction tax are among new
demands of lenders, who restarted talks in Nicosia last week.
A source with direct knowledge of consultations told Reuters
a "small" corporate tax increase could be considered by Cyprus,
along with a temporary levy on capital gains.
"It looks like consultations are starting to yield results,
and the proper compromises are being found," the source said.
The island, one of the euro zone's smallest, needs up to 17
billion euros in emergency loans mostly to recapitalise its
banking sector hit by a Greek debt restructuring.
Cyprus has been shut out of international financial markets
for almost two years. It has been forced to rely on
high-yielding short term borrowing from domestic lenders to pay
its day-to-day bills.
Cypriot President Nicos Anastasiades, who won presidential
elections last month replacing a communist administration
accused of running the economy to the ground, has vowed to work
for a swift bailout deal.
He was due to meet with Greek Prime Minister Antonis Samaras
in Athens on Monday.
Officials said he was exploring the possibility of Cypriot
banks with a presence in Greece getting some form of assistance
from Athens, through tapping into bailout funds made available
to Greek-based banks.