By Jan Strupczewski
BRUSSELS (Reuters) - Cyprus may require a smaller bailout than previously thought because the Mediterranean island could raise money from a levy on deposits and other taxes, euro zone officials said.
Initial estimates of the amount of money Cyprus would need to recapitalise its banks, service debt and cover government spending were around 17 billion euros (14.75 billion pounds).
"The number has come down, the numbers now are between 10 and 13 billion euros rather than 15 and 17 as it was before," one euro zone official said.
"It is thanks to a bit of a different scenario and some different assumptions on how much money can be generated in Cyprus itself through extraordinary taxes," the official said.
A second official confirmed the option was under discussion.
Officials said the tax could be on the deposits themselves rather than on the capital gains from the deposits.
"Italy has done that, it imposed a wealth tax in the late 90ties. If you do that, it could be in billions of euros. If you decide on a tax of, for example, 5 percent, you could get 4 billion euros," the euro zone official said.
Italy imposed the tax as a one-off to shore up public accounts to meet the criteria to enter the euro zone.
International lenders and Nicosia are also discussing the possibility of raising the corporate tax by 2.5 points to 12.5 percent. The lender would also like to see Cyprus introduce a financial transaction tax, something the country opposes.
"The corporate tax, a capital gains and deposit tax, the financial transaction tax, revenues from privatization -- all these things could be enough to make Cypriot debt sustainable," the official said.
"There is always a debate on what sustainable means, that will not end immediately, but you will probably have enough elements to have a programme that looks sustainable at first glance and then see how the programme unfolds over time," the official said.
German officials, backed by the Netherlands and Finland, as well as the International Monetary Fund, have pushed for depositors in Cypriot banks, many of whom are Russian and British business people, to help pay for the cost of the rescue, a process known as a "bail-in".
There are concerns in Berlin that Cyprus, with its low corporate tax rate and liquid banking system, has become a conduit for money-laundering. Russian individuals and companies have a high level of deposits in the banking sector.
But 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 percent of total deposits was withdrawn in January, although officials say there has since been a return of capital.
The euro zone official said however, that the IMF might decide not to contribute financially to the bailout, providing only expertise, like in the case of Spain.
This would ease the pressure on bailing-in depositors.
"This is still up in the air, but the natural conclusion would be, that the depositors would be safe," the official said of such a scenario, adding the European Central Bank was also leaning towards avoiding hurting depositors.
Euro zone officials have said they expected a decision on a bailout for the Mediterranean island to be taken before the end of March. German Finance Minister Wolfgang Schaeuble told conservative politicians on Tuesday that the Bundestag lower house of parliament would vote on aid for Cyprus before a wider European decision, but he did not set a date.
"In the parliamentary group meeting Schaeuble said the Bundestag would get to vote on it in the week before a European decision," Norbert Barthle, budget spokesman for German Chancellor Angela Merkel's Christian Democrats (CDU) told Reuters.
A precondition for the Bundestag to vote on bailouts is a decision from euro zone finance ministers that Cyprus requires financial assistance. The lower the bailout, the more easily it could get the approval of parliamentarians, as their consent is far from a done deal with just six months to go to federal elections.
Schaeuble can only give the Eurogroup of euro zone finance ministers German approval for the aid once he has the green light from the Bundestag. ($1 = 0.7684 euros)
($1 = 0.7680 euros)
(Additional reporting by Andreas Rinke in Berlin; editing by Ron Askew)