Economic Instruments - Charges and taxes
Domestic Water Taxation (Cyprus)
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Cyprus has a climate of mild winters and long dry summers, with drought as a major problem. They entered the EU in 2004 and by then had implemented most of the water directives.
The aims are to conserve water in a water-poor country.
The water tax was introduced in Cyprus in 1984 at approximately the same time as the installation of water distribution to households (Ecorys, 2011).
The water taxes are part of a suite of instruments as follows (Ecorys, 2011):
Several reuse schemes have been introduced, and schemes using treated sewage effluent are now operational and many more are under study or construction. Currently more than 50% of the recycled water is used for irrigation of agricultural crops, either directly or through recharge of aquifers. The rest is used for recharge and for irrigation of recreational areas (landscaping, hotel gardens etc)
When the tax was initially introduced, it was a fixed charge per user. It was later changed to be charged by volume. Water prices remained constant from 1994 to 2004, but as part of a reform of tax in 2004, it increased from 0.45C£/m3 to €0.77/m3 for most provinces (Ecorys, 2011).
Use of revenue
The revenue from the tax was aimed at improving water infrastructure and investment.
After 2004, demand for water decreased from 192 m3 per person in 2004 to 109 m3 per person in 2008. However there was also a drought in this period. The total cost recovery rate increased from 45% in 2001 to 62.1% in 2005 (Ecorys, 2011).
Ecorys, 2011. The role of market based instruments in achieving a resource efficient economy. http://ec.europa.eu/environment/enveco/taxation/pdf/role_marketbased.pdf