Cyprus parliament hikes corporate tax rate

MPs hiked Cyprus's ultra-low corporate tax rate on Thursday as part of a package of measures to secure a controversial 10 billion euro rescue package that must still be ratified by parliament.

They voted to raise the corporate tax rate from the current 10 percent, one of the lowest in Europe, to 12.5 percent in a move expected to raise 600 million euros ($786 million).

Parliament also approved increasing the defence levy on profits from interest on deposits from 15 percent to 30 percent and additional pay cuts in the public sector of up to 2 percent.

Following a ruling by the attorney general, parliament still has to vote on the bailout package as a whole.

The government agreed to costly terms with international creditors last month that have come in for heavy criticism among MPs.

The governing centre-right coalition holds a slim majority in the 56 member House but only if all its MPs toe the party line.

Opposition MPs from the communist Akel party and socialist Edek have voiced hostility to the high cost of the deal, which has surged from 17.5 billion to 23 billion euros, putting the teetering economy under more pressure.

"We disagree with this approach because we have analysed very carefully what it means to stay in the memorandum," Akel leader Andros Kyprianou told reporters on Thursday.

"It has led to other countries going on a downward path without being able to apply the brakes."

Only the lone Green Party MP has publicly said he will vote against the bailout agreement.

Government spokesman Christos Stylianides warned the opposition to think carefully before voting no, as Cyprus is quickly running out of money and has no other means of finance.

Local media reported Thursday that the bailout vote would be put to parliament after April 26.

Under the terms of the bailout agreed last month, Cyprus will drastically reduce the size of its once lucrative banking sector, raise taxes, downsize the public sector workforce and privatise some firms.

Cyprus is already in recession, with unemployment at around 15 percent and expected to grow sharply this year and next.

A eurozone Cyprus assessment is forecasting gross domestic product to plunge by 8.7 percent in 2013, led by a whopping 13.9 percent drop in domestic demand, and to fall another 3.9 percent next year.

cc/kir/al