Audit office report reveals systemic weaknesses in Tax Department VAT audits

A special report from the Audit Office has identified significant operational weaknesses within the Tax Department regarding VAT audits. While the newly established Pancyprian VAT Audit Unit (PME) performed well in 2024, conducting 175 audits that yielded €10 million—or one-third of total national VAT certifications—it lacks a formal annual audit plan. Conversely, the general tax machinery faces issues including long delays, desk-based reviews, and inadequate documentation, which have led to statute-barred debts and potential loss of public revenue. The report specifically highlights concerns regarding the handling of gold sales, citing conflicting interpretations within the department and a lack of on-site inspections for companies involved in gold transactions amounting to €38 million in VAT refunds. Furthermore, the Audit Office noted discrepancies between VAT and income tax filings, as well as instances of businesses remaining outside the tax system. Auditor General Andreas Papaconstantinou emphasized the need for a risk-based approach to resource allocation and criticized the focus on limited sectors. The audit, which analyzed samples from provincial offices and the Large Taxpayers branch in Limassol, underscored the need for improved institutional compliance to ensure fairness and public trust.