German increase in reduced 7% VAT rate reports

Tue 25th Dec 2012

Reports are emerging of plans to harmonise the German reduced VAT rate of 7% to the standard German rate of 19%.

At present, the German VAT regime categorises a number of supplies of goods at the lower, reduced VAT rates of 7%. This includes hotel accommodation, restaurants, books and public transport. Whilst the EU sets the overarching VAT compliance rules for the member state, but countries are still able to set the VAT rates.

The reports indicate plans after the September 2013 German elections to bring in a range of spending cuts and tax rises to bring the GDP to debt ration down from over 80% to the key Euro currency target rate of below 60%. The reports have been denied by the Finance Ministry.

Germany raised its standard VAT rate in 2007 to 19%, with is now over 2% below the EU average VAT rate. This rise was used to finance a cut in employer taxes and help Germany gain export competitiveness.  Since then, many other EU countries have followed suite, including the UK, Italy and Spain.  France recently announced similar plans, although its planed VAT rise was only from 19.6% to 20%. This rise by the new Socialist government compares to earlier plans by the then ruling Conservative government of President Sarkozy to 21.2% in October 2012.