Increase in Social Insurance Contributions and Implementation of the National Health Insurance System

The effect on citizens’ income and businesses

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The Social Insurance plan and the imminent implementation of the National Health Insurance System (NHIS) are among the most crucial chapters of the state’s Social Policy. As of 1 January 2019, there will be changes to the contributions by employees, the self-employed and the optionally insured to the Social Insurance Scheme (SIS). More specifically, according to the Social Insurance Law, the contribution by employees will increase from 7.8% to 8.3%, by the self-employed from 14.6% to 15.6%, and by the optionally insured from 13% to 14%, while the contribution by the optionally insured who are employed by a Cypriot employer abroad will increase from 15.6% to 16.6%.

The contributions for the implementation of the NHIS will also begin in 2019. Specifically, as of 1 March 2019, employees will contribute 1.7% of their wages, employers 1.85% of each employee’s wages, while the self-employed will contribute 2.55% of their insurable income. As of March 2020, with the full implementation of the NHIS, these percentages will increase to 2.65% for employees, 2.90% for employers and 4% for the self-employed.

Once the above regulations are introduced, there will be some significant changes for employees and businesses, with a domino effect of consequences that may have an impact on the economy as a whole.

The unifying, amending Law on Social Insurance adopted in 2010 includes the variations for the contributions to the specific fund up until the year 2039; however, these do not take into account various improbable, yet important factors for the Cyprus economy. The fact that there have been no changes to the relevant law since it was passed to balance it out, is quite telling; especially considering the significant developments that have taken place in the meantime, the most important of course being the haircut on bank deposits in March 2013. The increase of the contributions payable to the Social Insurance Fund (SIF) could well have been considered negligible, if it was not for this event. In reality though, this will be an additional expenditure for all categories of insured citizens, when many of them are still trying to recover. Furthermore, the increased costs reduce the chances of new recruitments, while also increasing the risk of reductions to workforces in businesses that find it difficult to manage the additional expense.

At the same time, the provision of Public Healthcare services is undoubtedly one of the most important benefits that a well-run state can offer its citizens. In the case of the NHIS, however, the substantive reduction of citizens’ disposable income may likely lead to a series of other problems, as regards the liquidity and the ability to repay debts by citizens who as a majority make up the middle class. This will make it difficult for individuals to maintain the same standard of living as they had before the increase in the Social Insurance contributions and the introduction of NHIS contributions.

Therefore, it is imperative that the competent authorities promote counterbalancing measures so that the increases in SIF contributions and implementation of the NHIS have the least possible financial impact on the citizens and businesses of the Republic of Cyprus.

by Theodoros Mantis, Head of People Advisory, Corporate Immigration & Payroll Services at Ellinas Finance PCL

 

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