Germany raises value-added tax to 19 percent
January 4, 2007
Americans’ spending power has been stretched a little thinner in Germany, with the nation’s value-added tax rising from 16 to 19 percent as of Jan. 1.
The tax hike — part of Chancellor Angela Merkel’s 2005 election platform – was approved May 19, 2006, and marks the first increase since April 1998, when the tax went from 15 to 16 percent.
European Union law requires the VAT rate for any country be at least 15 percent. Even with the increase to Germany’s tax – known as the Mehrwertsteuer — it still will be below the EU high of 25 percent, held by Sweden and Denmark.
The increase, which could raise 20 billion euros a year in tax revenue, has some worried that it might affect Germany’s growing economy. The AP reported in December that many shoppers were trying to beat the increase by making big purchases before the higher tax end of the year.
“The VAT in the European Union is a general, broadly based consumption tax assessed on the value added to goods and services,” according to the European Union’s official Web portal. The values added include retailer and manufacturer expenses.
Although the tax will affect most consumer transactions, some things, such as medical bills, postage and rental fees are exempt. A 7 percent reduced rate will still apply to food (not including drinks), printed material (books, newspapers, etc.), pet food, flowers and tickets for trains and streetcars.
Insurance purchased through German companies will also face a VAT increase, but those insured through U.S. companies, such as AIG, GEICO and USAA, are not subject to the tax.
In the short term, at least, “it does not affect our rates at all,” said Thomas Bohling, owner of the Bohling insurance agency in Darmstadt.
But the tax increase will drive up the operating costs for U.S. companies doing business in Germany, and premiums could go up slightly over time, Bohling said.
At a Bamberg, Germany, Mercedes-Benz dealership, salesman Axel Kolb said the increase might affect sales for a short time, but when spring comes, he expected things to be back to normal.
“(Consumers) will need a little time, maybe just two or three months, then people will get used to the 19 percent,” Kolb said.
Kolb, who handles all sales to Americans at the dealership, added that because military community members are exempt from the tax due to the Value-Added Tax Form Program, sales should remain the same for his foreign customers.
U.S. military VAT Forms and the Utility Tax Avoidance Program will see no changes based on the increase, said James Ross, U.S. Army Garrison Kaiserslautern VAT office chief, in an article posted on its Web site.
Ross said the only thing that will change is that consumers will save more money if they use VAT forms, adding that the price to purchase one is based on the cost to process it. A standard form, for purchases totaling less than 2,500 euros, costs $4.
While shopping at the jewelry counter at the Warner Barracks post exchange, Capt. Edward Bouldin, 317th Maintenance Company, said the only things he buys on the German economy are souvenirs or other small items showing that he’s spent time overseas.
Germany’s value-added tax increased to 19 percent on Jan. 1. Here’s the tax percentage in other European Union nations:
Denmark and Sweden — 25Finland and Poland — 22Belgium, Ireland and Portugal — 21Italy, Austria, Slovenia and Hungary — 20France – 19.6Germany, Greece, Netherlands, Czech Republic and Slovakia – 19Estonia, Latvia, Lithuania and Malta — 18Great Britain — 17.5Spain — 16Luxembourg and Cyprus – 15
— Stars and Stripes