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Reforms are necessary

Reforms are necessary

In an ever-changing and fragile financial and international political environment, maintaining the competitiveness of an economy must be a priority for all institutions. Economic reforms usually lead to increases in productivity and development as well as improvements in the standard of living for all citizens. However, when these reforms lead to short-term temporary solutions or lead to additional bureaucracy and complex procedures, then they have the exact opposite effects.

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An economy which cannot adopt quickly and flexibly in line with the
changes of the global economic system and which cannot achieve specialization in sectors which are constantly changing, faces huge problems, especially in a period where the main characteristic of the international environment is inconstancy.

In cases of economic crisis the need for reforms is even greater, since
on the one hand they lead to a cutback of spending of both elastic and
inelastic nature and on the other hand they also stimulate the productivity levers of the economy.

Unfortunately, for Cyprus many reforms have been occasionally suspended
while others began and stopped. This has led to a non-competitive economy, with bureaucratic procedures and significant problems in the citizen’s everyday life. This, beyond the long-term political passiveness, was a result of weak goal congruence between the parties involved. A prime example is the town planning, which at many times seems inconsistent and which lacks technocratic composition.

Reforms which have not even commenced are many, while some which have
commenced or have already been implemented need to be re-examined. For example, the companies’ law was subject to many amendments and alterations deviating from the original publication. The specific law and broadly speaking the entire legislative frame requires consolidation as well as simplification. This might require the re-drafting of laws from scratch.

The creation of a flexible and efficient state machine supports the
business environment and the quality of services offered to citizens. This is
the reason why legislations which concern the state mechanism reform and the adoption of simple and short procedures must take place, supporting electronic governance at the same time.

Businessmen and investors in general, beyond evaluating the existence of
a stable tax and legal framework, also tend to evaluate the various procedures implemented. No one would like to bear administrative costs and big delays, as far as their investments are concerned, due to the problems that the state services may face.

Regarding tax matters there is a plethora of fines and penalties
enforced by the current legislation. In no case are we stating that the fines
and the interest on fines imposed must be reduced, but due to the sheer number of volume in the potential fines and penalties all of which are enforced in multiple cases, it should be acknowledged that it may cause confusion. What is required is a parallel simplification and reinforcement process so that tax compliance is supported.

Even if there was some progress for the simplification of procedures in
the public sector, there is still a lot to be done in other areas, such as on
the procedures for the licensing of big projects and in the modernization of
semi-governmental organisations as well local governance institutions. There
were specific measures in the memorandum which were implemented, but their practical implementation must be evaluated so that where necessary corrective measures can be taken. Postponing decisions, especially in today’s environment, could lead to significant negative consequences.

It must be noted that the reform and simplification of procedures does
not translate to less supervision and regulation, especially in significant services. Simply, specific supervisory mechanisms must be flexible so that they do not restrain or create impediment to the procedures.

What is important in this effort is the assimilation of any changes from
society and citizens so as to provide the necessary support to these reforms.
Beyond local society, the creation of a flexible business environment and the
support of public services is expected to attract foreign businessmen, who
either wish to do business in Cyprus or to set up their office in the country.

The evaluation of the firms’ reports as far as the return of our country to investment, beyond the reduction of non-performing loans, are focused on the upgrading of procedures, therefore the continuation of reforms is imperative.

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ("KPMG International") a Swiss entity. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International Cooperative ("KPMG International") or KPMG member firms.

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