Future of COLA rates in Germany uncertain as Value Added Tax rises
January 9, 2007
Whether Americans in Germany will see a hike in their cost-of-living allowance in response to a Jan. 1 increase in the country’s Value-Added Tax remains up in the air.
Representatives from the U.S. State Department, which handles COLA — also known as post allowance — for civilians, and the U.S. Department of Defense’s Per Diem, Travel and Transportation Allowance Committee, which handles COLA for servicemembers, have indicated the tax increase will be taken into account, but were unable to say how, or when, it might affect the allowances.
At this point, neither department has the data to warrant increasing the allowances based on the tax increase. Both allowances are affected by retail prices, which are surveyed once a year by the military, and once every two years by the State Department in places where the military doesn’t already collect data. The military conducted its last survey in October, according to Staff Sgt. Dean Lowery, the noncommissioned officer in charge of military and travel policy for the 226th Finance Command.
Beatrice Bertucci, chief of the overseas COLA section at the Per Diem, Travel and Transportation Allowance Committee, said the VAT increase will be taken into consideration when the committee makes its recommendations to the military advisory panel that authorizes changes to COLA. The panel’s next meeting is mid-January.
But Bertucci was mum about the committee’s plans to recommend a COLA increase to the panel.
“At this point we’re not ready to go yet,” she said.
Joyce M. McNeil, who reviews and approves analyses of the post allowance rates in Western Europe for the U.S. State Department, said her section already has been contacted by some posts in Germany about the issue.
“We recommended to them that they complete and submit new retail price schedule surveys to reflect any higher costs,” McNeil wrote in an e-mail response to Stars and Stripes.
However, her department also recommended that posts hold off on conducting new surveys until the full effect of the VAT increase is reflected in retail prices.
“What we have seen in some other countries where a VAT was increased is that in many cases there are a number of goods already on the shelves and in the warehouses, and the new VAT is not immediately reflected in prices,” McNeil wrote.
McNeil went on to say that the effect of a VAT increase on consumer goods is usually added at each step of the manufacturing process as the cost of doing business goes up across the board. That means the 3 percent VAT increase might not result in a straightforward 3 percent increase in consumer prices.
Some Americans in Germany fear the tax increase has the potential to add insult to the injury caused by the strong euro.
Sgt. Rachid Akhrid, a member of the 32nd Signal Battalion in Darmstadt, Germany, wanted to buy Christmas gifts off post, but high prices — before the tax increase — kept him from shopping off base.
“We want to shop off post,” he said, referring to his family. “There’s a lot I’d like to get, but I can’t.”
He said he hopes COLA goes up again soon — it increased in nearly all communities across Germany in mid-December for both civilians and military personnel — but if it doesn’t, he’ll further curb his off-post shopping, he said. “I try my best not to use the euro.”