I believe the decision was based on German unwillingliness to bail out Russian "hot money" , which they believe is the majority of Cypriot bank cash deposits. They grossly miscalculated the public reaction however.
"The Cypriot government on Sunday discussed with lenders the possibility of changing the levy to 3.0 percent for deposits below 100,000 euros, and to 12.5 percent for above that sum, a source close to the consultations told Reuters on condition of anonymity."
"According to a draft copy of legislation, failing to pay up would be a criminal offence liable to three years in jail or a 50,000 euro fine."
http://www.reuters.com/article/2013/03/17/us-cyprus-parliame...
It's also very risky and results in savers losing money. It's also less progressive than what they are proposing as it's strictly just a flat percentage of assets.