Cyprus is planning to impose a one-off tax on bank savings. It is one of the conditions for being given a 10-billion-euro bailout package by eurozone countries and the IMF. Particularly, the Euro Group demands that Cyprus levy a 6.75-percent one-time tax on all deposits up to 100,000 euros and a 9.9-percent one on larger deposits. The country’s President Nicos Anastasiades is holding urgent negotiations with creditors in an attempt to have the tax cut down, for this news touched a wave of public outrage and quiet discontent about business which keeps an estimated 80 billion dollars in Cyprus.
Should the taxes be imposed, it will be possible, without an exaggeration, to call this event financial revolution. Cyprus has long been considered the word’s No.1 offshore area. Besides, the Cyprian money remains a most powerful source of investments in Ukraine. In 2012 the net increment of deposits from this country was 3.92 billion dollars or 95 percent of the total growth of investments.
The Cyprian parliament, now convening an extraordinary session, will finally decide whether or not there will be a new order in Cyprus. As the MPs are drawing up a resolution, the Cyprian authorities have “closed” banks until Wednesday, The New York Times reports.
In an interview with The Day, Yaroslav LOMAKIN, owner of the consulting company Honest & Bright Ltd. which specializes in offshore taxation, told about the consequences that the Cyprus situation will have for Ukraine and the world:
“If Cyprus imposes a 10-percent tax on deposits, it will go belly up as a financial center. It is unlikely that somebody will want to work with that country after this. Businesspeople are rejecting the Cyprian offshore area and transferring money to other countries.
“The banking system of Cyprus is a living corpse. What effect will this have on other economies? On the one hand, the current investments on Cyprian accounts will undergo no changes. On the other, it is not clear what will happen to deposits and current balance settlements. So the No.1 task today is to redistribute this financial flow.”
Does Ukraine stand a chance to take advantage of this situation and bring its oligarchs’ and business people’s savings back home? What is to be done for this?
“Nothing. The money will not remain at home as long as ‘the Family’ is expropriating it. It will only be redirected. The worst thing will be if the Cyprian savings go into the ‘shadow.’ It will be better if they go to other jurisdictions. The situation, in which we are turning into a police state, only increases the number of policemen instead of improving business conditions.”
What “other jurisdictions” do you mean?
“Ukrainian capitals will rush from Cyprus, first of all, to the Baltic countries, for it is the easiest way. The Baltic countries have long been prepared to receive the Cyprian money. Latvia is most likely to become a new financial haven for Ukrainian capitals. Another direction is banks in Hong Kong and Singapore. The third direction is old Europe, particularly Austria, which likes to guard banking secrets so much.”
Why do you think the Cyprian government is taking this step?
“It is not a mere coincidence. The Cyprian government is well aware that this may result in colossal financial losses and the ruin of the country’s image. It is not an impulse decision. It was prepared well in advance by the previous Communist government which reasoned approximately as follows: ‘Let us seize the stolen and help ourselves.’ It is financial donor countries that prompted the government to take this step because the situation in Cyprus is by no means the best.
“In my view, the imposition of an additional tax is a way to survive which suits the Communists. But the new team of capitalist officials will ponder over how to do this in a finer manner. Maybe, they will make use of Russian President Vladimir Putin’s recent idea to tax the percentage income rather than the total deposited money. I hope the new governmental team will heed criticism and approve a softer option, for, otherwise, we should expect a mini collapse of Cyprus’s financial system, which will in turn lay the groundwork for destabilization of the European banking system. For Cyprus is part of the EU financial system.”