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 eurozone bailout it asked for last year.
Cyprus needs up to €17 billion - 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 eurozone 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.
The nominal corporate tax, which now stands at 10 per cent, could be raised to 12.5 per cent. The introduction of the financial transaction tax, which will be applied by 11 eurozone countries from next year, is a Troika idea, which Cyprus does not support for now. The tax would be set at 0.01 per cent of the value of trades for derivatives and 0.1 per cent for stocks and bonds.
In what could be a welcome relief for eurozone taxpayers suffering bailout fatigue, 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 eurozone lenders - meaning it would get repaid right after the IMF.
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 Figures released last week showed a little over 2 per cent of total deposits was withdrawn in January, although officials say there has since been a return of capital.
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