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Cyprus: Taxation of Investors Essay

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Updated: May 11th, 2022

Introduction

The article called “Cyprus Deal Rattles Markets” talks about the current state of financial affairs in Cyprus and the international bank investments. As many countries worldwide use Cyprus banks to store their money, it has been proposed to tax the depositors of such investments. This would help alleviate the financial crisis that has devastated Cyprus.

General overview

Due to this, there was a decline in shares, which somewhat rebounded but the decrease continued. This also led to the euro lowering its value in comparison to the dollar. There was no major reaction from investors and so, the matter was somewhat paused to figure out the best course of action. Cyprus would have benefited if many investors from countries all over the world are attracted to deposit into their banks but with an increased tax this might damage the plan and reputation of the banks. For those countries with economies that are weaker or developing, this sort of change would divert them from investing and dealing with Cyprus. The announcements have caused a stir that was followed with banks closing from Monday to maybe, Wednesday. Some countries were immediately affected. “Japan’s Nikkei Stock Average fell 2.7%” (Martin and Forelle par. 6). The United Kingdom, Germany, Italy, Spain, and France were also affected. Russia was also among the countries affected like a lot of investments in Cyprus banks are from there. The countries in the European area have proposed to offer 10 billion Euros to help out with the crisis, where 5.8 billion Euros would be acquired from the proposed taxes on the deposits in the banks (Martin and Forelle par. 13). A clear plan of action has not been outlined yet and so, deliberations are in process. It must be done wisely because if everyone is taxed equally, a lot of smaller investors would suffer. This is why it is noted that the policy regarding the changes must address issues individually, as to not greatly affect smaller investors. But the news that had taken place over the weekend was so great that a lot of things have already changed, and it is unclear what further could happen. The parliament has to decide what to do next and it must be careful because any minor decision will be very influential. There is a possibility of investors withdrawing their money from Cyprus banks because, in such an unstable time, there might be future changes in the taxes. If Cyprus needs to be helped again, there might be another tax increase issued and this fear can make investors take their business somewhere else. The longer this situation takes place, the more effect it will have on Cyprus and the global market in general. As previously mentioned, Russia is rather close by and that is why many investors are storing their money there. Russia is one of the world’s superpowers and so, have a great influence on the market and global economy, as well as several other influential issues. This is why all the sides are interested to resolve this matter as quickly as possible.

Conclusion

This situation has created a lot of stir globally. It raises questions as to what will follow and how other investments worldwide will be affected. If Cyprus does what it has planned and investors are taxed, other countries might do the same and change the world market.

Reference

Martin, Katie, and Charles Forelle. “Cyprus Deal Rattles Markets.” The Wall Street Journal. 2013. online.wsj.com. Web.

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IvyPanda. "Cyprus: Taxation of Investors." May 11, 2022. https://ivypanda.com/essays/cyprus-taxation-of-investors/.

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IvyPanda. 2022. "Cyprus: Taxation of Investors." May 11, 2022. https://ivypanda.com/essays/cyprus-taxation-of-investors/.

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IvyPanda. (2022) 'Cyprus: Taxation of Investors'. 11 May.

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