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Germany reduces VAT in race to save economy

Germany reduces VAT in race to save economy
Germany reduces VAT in race to save economy

As part of the program of support adopted by the German government for the weakened boom in the coronavirus crisis, the Bundestag adopted a reduction on Monday until the end of this year. VAT rates and the payment of one-off benefits of EUR 300 to each family for each child. 

If – as envisaged – the Bundesrat approves these solutions on Monday afternoon, they will enter into force on 1 July.

To increase the purchasing power of society, the basic VAT rate will be reduced from 19 to 16 percent, and the special rate applicable to many food and everyday goods will be reduced from 7 to 5 percent. 

According to the dpa agency, many supermarkets as well as car and furniture showrooms have already announced that they will allow their customers to take full advantage of these discounts and will take action to reduce prices from the beginning of the week.

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An additional one-off benefit of 300 euros will apply to all children with child benefit. 200 euros will be paid together with the allowance for September and 100 euros in October.

It is estimated that the loss of tax revenues due to the reduction of VAT rates will amount to EUR 13 billion, and expenditure on one-off child vouchers will reach EUR 5.4 billion. These costs will be borne entirely by the federal budget – as with all other elements of the business support package. 

That is why finance minister Olaf Scholz has already announced that the state will take additional loans, which will increase their total volume this year to a record EUR 218.5 billion. The Bundestag is due to amend the budget this week.

Source: Bundesrat

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