As of: February 14, 2024, 5:02 a.m
By: Lisa Mayerhofer
Comments
Press
Split
The reduced VAT rate of just seven percent applies to “everyday goods” – i.e. almost all food.
(Archive image) © IMAGO/Rafael Ben-Ari
Seven percent for hearing aids, 19 percent for glasses: There is a mess when it comes to VAT in Germany.
Economist Fuest is calling for reform - and is not alone.
Berlin - VAT will come into focus again in 2024: Since the beginning of the year, the old VAT of 19 percent has been due in the catering industry again, no longer the temporarily reduced rate of seven percent.
The restaurateurs protested sharply, but in vain.
Now going to a restaurant is becoming more expensive in some places.
Because in Germany there is a colorful patchwork of different VAT rates.
Economist Fuest calls for a uniform VAT rate
The President of the Munich Ifo Institute, Clemens Fuest, has now called for a complete reform of the sales tax law.
Fuest argued in the
Süddeutsche Zeitung
for a uniform VAT rate of 16 percent instead of the current different VAT rates of 19 percent and a reduced seven percent.
VAT and sales tax briefly explained
Sales tax and VAT are often used to mean the same thing.
It is a tax on the turnover of goods and services levied on companies.
When a company sells a good or provides a service, a certain percentage of the sales price is levied as tax.
This means that everyone who buys something has to pay VAT.
In Germany, VAT is 19 percent in most cases - for example on furniture, clothing or when visiting a restaurant.
The reduced VAT rate of just seven percent applies to “everyday goods” – i.e. almost all food, but also books and local train tickets.
The problems begin with the distinction between a higher and a reduced VAT rate: Originally introduced to relieve the burden on consumers, there is now a colorful patchwork of different, not always understandable, tax rates.
VAT madness: Seven percent for hearing aids, 19 percent for glasses
Here are a few examples: Cow's milk, for example, is defined as a staple food and is only taxed at seven percent - but oat milk is not, where the tax rate is 19 percent.
And: According to
SWR,
truffles - hardly the staple food of most Germans - only cost seven percent, but for sweet potatoes, for example, it is 19 percent.
Hearing aids also only attract seven percent VAT, but 19 percent applies to glasses.
Things don't get any better when it comes to services: If food and drinks are ordered "To Go" - i.e. take away - in a restaurant, a VAT rate of seven percent applies - but if you eat in the restaurant it is 19 percent.
And a ride on the ski lift is again at seven percent, but a child seat comes with 19 percent VAT.
This list could go on indefinitely.
Fuest: “Economically, this patchwork of VAT only causes harm”
Top economist Fuest tells the
SZ
with regard to the previous model: “Economically, this patchwork quilt of VAT only causes damage.” There are huge demarcation problems and the many exceptions open the door to lobbying, he warns.
“If politics has given in to one interest group, the next ones are immediately on the mat.” Fuest is not alone in his opinion: the Federal Audit Office also considers a sales tax reform to be “long overdue” in a report.
My news
Setback for Germany: Next company withdraws from its homeland read
“Citizen money is a crime against our children” – Hard traffic light billing
“Apples with pears”: That’s how long pensioners would have to work for a civil service pension
Generation Z is not ashamed of unemployment: “job shopping” instead of worrying about the future
Pension increase in July: Anyone who can look forward to 7.5 percent more pension can read
Record wave of bankruptcies: Companies from key sectors are also affected by bankruptcies
However, politicians have so far shied away from touching VAT.
A uniform VAT rate of 16 percent, as Fuest is proposing, would probably initially lead to an outcry.
Because then many things would become a little cheaper, but frequently purchased foods would also become significantly more expensive.
“Of course there is the distribution effect.
If you lower the VAT, the rich and the poor will benefit, and if the VAT on goods that are now taxed at seven percent is raised to 16 percent, households with less income will be more burdened," Fuest told the newspaper.
The state then has to compensate for this through money transfers.
“Recipients of citizens’ benefit automatically receive compensation for the more expensive food because, from a legal point of view, the subsistence level must always be covered.
A slight income tax cut could help with incomes above that.”
A lot of money is involved in VAT.
According to the Ministry of Finance, it is the federal government's second largest source of income with around 99.7 billion euros in 2022.
With material from AFP