Central Bank of Cyprus assesses impact of 2026 tax reform

A new working paper from the Central Bank of Cyprus, authored by Aris Avgousti, Charalambos Michael, and Georgiana Fotiadou, provides an economic analysis of the nation’s 2026 personal income tax reform. The study evaluates how the government's tax changes impact disposable household income, public finances, and broader macroeconomic stability.

The research reveals that the reform increases average disposable income and reduces the total number of taxpayers. However, it notes that the financial benefits are disproportionately skewed toward high-income and upper-middle-income households. The paper estimates an annual fiscal cost of approximately €240 million, which aligns with previous official government projections. Furthermore, the authors conclude that the reform does little to improve the redistributive fairness of the tax system and may slightly weaken its social role.

While the Central Bank acknowledges that tax policy is the responsibility of the government, it stresses the importance of analyzing these changes due to their impact on consumer demand and savings behavior. The study serves as an independent economic assessment of the fiscal burden and distributive consequences of the current legislative changes.