* Cyprus needs up to 17 bln euros in emergency loans
* Capital gains tax could be limited to three years
* Corporate tax could be raised to 12.5 pct from 10 pct
* Bailout fatigue could be eased by Russia joining rescue
By Jan Strupczewski
BRUSSELS, March 7 International lenders would
like Cyprus to raise its corporate tax and introduce a levy on
capital gains and a financial transaction tax to ensure it can
repay a euro zone bailout it asked for last year, euro zone
officials said on Thursday.
Cyprus needs up to 17 billion euros - almost as much as its
annual gross domestic product - in emergency loans, mostly to
recapitalise its oversized banking sector, hit by a Greek debt
restructuring, but also to service debt and government expenses.
The amount is small compared to euro zone GDP, but
policy-makers in several countries, notably Germany which faces
elections in September, are keen to limit taxpayer exposure
after earlier bailouts for Greece, Ireland, Portugal and Spain
made public opinion reluctant to further aid.
One official, briefed on the talks between the International
Monetary Fund, the European Central Bank and the European
Commission - known as the Troika - and the new government in
Nicosia, said no decisions had yet been taken on any of the
"All these options are on the table now, but there is no
agreement yet," the official said.
The capital gains tax could be introduced only temporarily,
for three years, and provide the government with an extra
revenue of 200-300 million euros.
The nominal corporate tax, which now stands at 10 percent,
could be raised to 12.5 percent, officials said.
The introduction of the financial transaction tax, which
will be applied by 11 euro zone countries from next year, is a
Troika idea, which Cyprus does not support for now. The tax
would be set at 0.01 percent of the value of trades for
derivatives and 0.1 percent for stocks and bonds.
In what could be a welcome relief for euro zone taxpayers
suffering bailout fatigue, officials said Cyprus received
signals from Russia, which has strong business ties with
Nicosia, that Moscow could consider contributing to the bailout
if it got the same credit status as euro zone lenders - meaning
it would get repaid right after the IMF.
"It is likely to happen," one official familiar with the
bailout talks said.
Officials also said that Russian investors were interested
in buying a majority stake in Cyprus Popular Bank and
increasing their holdings in Bank of Cyprus - the two
biggest banks on the Mediterranean island.
Cypriot President Nicos Anastasiades is to travel to Russia
to meet President Vladimir Putin in the coming weeks to discuss
possible Russian help, officials said. He will seek a 5-year
extension of an existing Russian loan to Cyprus of 2.5 billion
euros that matures in 2016 as well as a reduction in the 4.5
percent rate of interest.
Officials said Cyprus had asked for a reduction of the
interest by 1.5-2.0 points.
Euro zone finance ministers pledged this week to agree a
bailout for Cyprus by the end of March, but details of how the
rescue will be financed are yet to be sorted out.
German officials, backed by the Netherlands and Finland,
have pushed for depositors in Cypriot banks, many of whom are
Russian and British business people, to help pay for the cost of
the rescue, a process known as a "bail-in".
There are concerns in Berlin that Cyprus, with its low
corporate tax rate and liquid banking system, has become a
conduit for money-laundering. Russian individuals and companies
have a high level of deposits in the banking sector.
But Cyprus fears any "bail-in" will spark the rapid
withdrawal of funds from the island and undermine its entire
business model, making the economic situation even worse.
Figures released last week showed a little over 2 percent of
total deposits was withdrawn in January, although officials say
there has since been a return of capital.