Germany postpones introduction of single VAT rate
- Jun 1, 2014 | Richard Asquith
The German tax office has decided not to follow-up a proposal to combine the current 19% standard and 7% reduced German VAT rates. The proposal had been to combine the rates at 16%.
EU calls for fewer VAT rates
The European Commission has repeatedly called for member states to reduce the number of VAT rates, including rolling reduced rates into the standard rate. This would facilitate the reduction of the new, combined rate.
The EC sees the multitude of rates as confusing and distorting in the context of the single market.
German worries over tax gap
The proposal was produced by the Bundestag Finance Committee, with the aim of simplifying and reducing compliance burden on businesses. However, the Finance Ministry estimated that it would leave a revenue shortfall of over €8 billion per annum.
In addition to any shortfall, the reduced VAT rate is a useful tool to promote key social and economic activities. For example, hotel accommodation and books are subject to the reduced German VAT rates.
The plan follows a similar attempt in the Czech Republic to consolidate its VAT rates at 17%. This too has been side-lined.
Germany last raised its standard VAT rate in 2007 from 16% to 19% to fund cuts to labour taxes.