By George Psyllides

The 2015 budget aims at creating the conditions that will allow the government to lighten the tax burden, Finance Minister Harris Georgiades said on Wednesday, as he welcomed its approval by parliament the previous day.

"This way, we will continue the effort to reform and consolidate our economy," he told a news conference.

The minister acknowledged that funds for development were scarce but stressed that this was what the country could afford.

A budget must take into account the country's real capability, he said, "otherwise, we will simply have a repeat of what happened in previous years; the need for new taxes or the uncontrollable increase of public debt, which hinders growth prospects."

"To be precise, we want to create the conditions that will eventually allow us, even slightly, to reduce the tax burdens imposed between 2012 and 2012," Georgiades said.

But he could not give a timeframe and warned against any premature expectations.

"But I am expressing our political direction in the clearest way," the minister said.

He reiterated that no new taxation would be imposed on the private sector, households, and businesses and if anything, the government would seek to cut taxes if conditions permitted.

The 2015 budget includes increased spending on development - 5.2 per cent — and 5.3 per cent on social spending.

This, according to the minister, was the result of a 3.2 per cent cut in the state payroll and the reduction in debt servicing by 12.4 per cent.

"Our approach is based on the creation of conditions of stability and confidence. This is what the economy needs," Georgiades said.

The minister said Cyprus was receiving positive messages from foreign investors, a fact that was directly linked to the government's strategic objective of restoring its credit rating.

He confirmed that a new loan from international markets was among the government's goals but only when market conditions allowed.

State Taxation Service collected over 4 billion soms of taxes and payments in November, its press service reported.

According to it, the plan was exceeded by 4.7 percent. At the same time in the first 11 months of 2014 the State Taxation Service the plan to replenish the revenue side of the budget is made on 96.8 percent. The treasury of the country received 37 billion 343 million soms.

Since the beginning of the year increased non-tax revenues (29.3 percent), the collection of taxes on gross income from Kumtor (15.1 percent), personal property (13.9 percent), the single tax (12.8 percent).

If the Conservative party forms the next government, by 2020 the state will probably be the smallest it has been - in relation to GDP - for 80 years. So declared the Office for Budget Responsibility last Wednesday, in the wake of the autumn statement. By 2020, spending per head of population will have fallen by around a third in 10 years. In some areas - in our cities and our criminal justice system - the reductions will be even more draconian. This is the most dramatic change in state capability that any British government has ever engineered.

The chancellor may complain about the "hyperbolic" tone of some BBC reporting. But surely only in a one-party state would this dramatic plan not be discussed in appropriately dramatic terms. Britain is to become the site of a massive experiment in economic and social libertarianism whose authors have never fessed up to the sheer audacity and scale of what they are doing. They have just dumbly insisted there is no alternative. The autumn statement was the moment the implications became clear.

A financial crisis has been allowed to morph into a crisis of public provision because the government of the day will not lift a finger to compensate for the haemorrhaging of the UK tax base. What the state does is not the subject of a collective decision with concerned weighing of options. Instead, it's an afterthought, with the greater priorities a reduction in public borrowing and freezing or lowering tax rates.

All the state can spend is what is left after those two greater priorities are met, and if it has to shrink to pre-modern levels then so be it. The market will provide: charity will alleviate suffering; people will get by; the roof will not fall in. Lifting taxation can never be considered to close the gap. It is, it is alleged, both economically self-defeating and immoral.

A cool pound;54bn has gone missing since 2010. Then the government projected that in 2014/15 its total tax revenues would be pound;700bn. In fact, they will be pound;646bn, according to the OBR. Public spending, on the other hand, has behaved almost exactly as forecast. In 2010, the government projected that its spending would be pound;738bn in this financial year. The Treasury is to be congratulated on its capacities as national book-keeper in chief. The actual figure is pound;737bn, an accuracy I doubt many private companies could reproduce - or even individual readers of the Observer. It is not runaway public spending that is causing borrowing to stay stubbornly high, thus triggering the extreme shrinkage of the state: it is the hollowing out of the tax base.

There are three principal causes. The first is that the structure of the economic recovery is delivering a reduced tax yield. There are too many low-paying jobs and pay on average is stagnating, so that aggregate income tax revenues are growing much less rapidly than in previous recoveries. We are drinking and smoking less, so there is less revenue from alcohol and tobacco duties. Altogether this accounts for around a third of the shortfall.

Another third is a result of the chancellor wanting to show his tax-cutting credentials as a true Thatcherite man: he has cut corporate tax rates, frozen the business rate, not adjusted council tax bands upwards, not increased petrol duties, lowered the top rate of tax and increased personal allowances. The last element is down to our living with an epidemic of tax avoidance and evasion, as the last G20 summit recognised - and which even Osborne says he deplores. Too many companies and rich individuals are gaming the system.

Put all this together and Britain has lost that pound;54bn. But matters are made worse by the interaction of Britain's highly centralised Treasury and a chancellor with Osborne's instincts. Giles Wilkes, former adviser to Vince Cable, and Stian Westlake, research director at Nesta, write in an important paper, The End of the Treasury, that the Treasury inverts the way that spending and taxing decisions should be made. It starts with a target for borrowing, not differentiating great capital projects such as London's Crossrail from spending on the NHS. Then it projects tax revenues assuming no changes, and sets aside money for fixed obligations, such as pensions.

Finally, departments fight over the left-overs on a year by year basis, with the Treasury policing spending with a ferocious rigidity. The benefit is that it can control spending to the last billion. The cost is that there is never a weighing up of the benefits of raising taxes against a particular use for public spending, nor any strategic long-term programme of investment.

This is bad enough in ordinary times, but when a chancellor refuses to consider raising taxes as the tax base collapses it is a recipe for disaster. It results in a minimal state, with implications for prisons, schools, courts, policing, legal aid, care, security and defence that are profound. Some of this could be avoided if, as both Labour and the LibDems propose, capital investment was not lumped in with current spending so that virtuous borrowing could be separated out. The country may also get lucky: wages stop stagnating and income tax receipts rise.

But the bigger truth is that if Britain wants the scale of public activity congruent with a civilised society, it has to be paid for. The reaction will be hysterical, but lifting taxes by 3% of GDP to 38.5% to find the missing pound;54bn will still leave Britain below the crucial 40% benchmark, thus undertaxed by comparison with most advanced countries. The whole system of property taxation needs overhauling. The VAT base can be broadened. Environmental taxes can be extended. Osborne's proposals to ensure companies pay tax on UK revenues need to be tougher and introduced earlier. The income tax system needs reshaping.

None of this is easy. But neither is reducing the state to its smallest level for 80 years. Reducing spending on schools further is surely short changing our children. How much smaller should the army, navy and air force become? Is the welfare system to return to a system of discretionary poor relief? Do we share the libertarian view that the state is worthless - and there is no co-dependency between public and private? What role do we want the state to have in our civilisation? The right would have it that none of these questions can be asked because all involve an increase in taxation: our only future is a 1930s scale state.

There is a different future, and our politicians of the centre and left have to argue for it, but they must accept it has to be paid for. This has become an existential divide. Politics and political argument have never mattered more.

The IRS approach to the taxation of crypto currencies like Bitcoin may turn into an accounting nightmare for all but the most casual of users.

Virtual currencies, such as Bitcoin, are becoming useful tools in the digital age. In essence, a virtual currency is a currency that exists only in cyberspace and is not backed by any government. The value often fluctuates by the hour and there is no coin or certificate to touch.

When examining the IRS approach to the taxation of such currencies, the most basic question is whether they will be treated as currency or property. The IRS chose to treat virtual currency as property and opened the door for some detailed and voluminous accounting. Details of the IRS taxation scheme for the taxation of virtual currencies can be found in IRS Notice 2014-21 [].

Since virtual currencies are treated as property for federal income tax purposes, a good way to view them is to consider how bartering is taxed. When you work on a project and are paid with a truck as a barter, the value of the truck is compensation for services, which constitutes income. The amount recognized in income becomes the basis in the truck. The subsequent barter of the truck for something else, say, a hot tub, is a realized taxable transaction. That is, the basis of the Bitcoin transferred to acquire the truck is compared to the value of the asset to which it is exchanged (the hot tub); any value increase is treated as as income.

Given the IRS treatment of virtual currency as property in IRS Notice 2014-21, the burning question will be how a taxpayer will maintain adequate records to determine the correct amount of tax. Imagine having a cyber-wallet with Bitcoins from numerous transactions that presumably will all have a different basis, especially in light of the fluctuations in value experienced in Bitcoins. Accordingly, the amount of basis in each Bitcoin will vary widely. Will a taxpayer be able to specifically identify the Bitcoin they are using for basis purposes or will FIFO, LIFO or another method be employed to correctly reflect basis?

Once we determine and account for basis correctly, then we have to examine the other side of the transaction, the value of purchases made with Bitcoins. An extreme example is to use Bitcoin to pay for a daily cup of coffee. The accounting would be voluminous. Will a fraction of the super-computing techniques used to "mine" Bitcoins be implemented to keep track of all Bitcoin basis and taxable realization events? Once that becomes common place, the accounting burden may become reasonable.

Besides the actual computation of tax, there are other IRS compliance issues to consider. For example, the IRS has not waived employment tax withholding and reporting obligations merely because a virtual currency is involved. Per the IRS Notice, general tax principles that apply to property transactions apply to transactions using virtual currency. Among other things, this means that:

  • Wages paid to employees using virtual currency are taxable to the employee, must be reported by an employer on a Form W-2, and are subject to federal income tax withholding and payroll taxes.
  • Payments using virtual currency made to independent contractors and other service providers are taxable and self-employment tax rules generally apply. Normally, payers must issue Form 1099.
  • The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset in the hands of the taxpayer.
  • A payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property.

With the gusto used by many employers who consider withholding and reporting as merely aspirational goals that may be complied with or not, paying employees in virtual currency to fly under the radar is expected-if it is not already underway.