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Should Germany reduce the VAT on electricity and fuel bills? (SÖDER thinks so!)

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I’m sure you’ve noticed the rise in energy and fuel prices. NOW Bavaria Premier Söder is calling for a reduction in VAT on them. A reduction relieves the citizens. The proposal was met with both criticism and approval.

In view of the rapidly rising gas and petrol prices, CSU boss Markus Söder has called for a reduction in VAT on energy and fuels. “We have to meet the citizens in terms of tax in these difficult times,” said Söder on Sunday. 

VAT reduction plus price brake and gas strategy

VAT

“A reduced VAT rate on energy and fuels would relieve the citizens of the worst hardships,” said Söder of the newspaper. In addition, he called for a price brake for the winter and a gas strategy that secures the supply of Germany. “This also includes the commissioning of Nord Stream 2. The traffic lights must act quickly,” said the Bavarian Prime Minister with a view to the Dealing with a new federal government made up of the SPD, the Greens and the FDP with the controversial German-Russian gas pipeline. The gas price in particular had risen sharply in recent months. But fuels and electricity also became significantly more expensive.


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Immediate criticism from the DIW

VAT

▶ The DIW sees Söder’s suggestion as a lack of understanding for climate protection

The German Institute for Economic Research (DIW) clearly rejected this request. The Green politician Sven Giegold spoke out in favor of “short-term relief for the citizens”.

Criticism of Söder’s approach came from the DIW. A VAT cut “would be ecologically, economically and socially the most damaging thing politics can do,” Fratzscher told the “Handelsblatt”. The demand “shows a lack of understanding of how climate protection works and what politics must do to promote it”. The price of fossil fuels must rise and not fall, “so that companies and people change their behavior where it is comparatively easier for them to do so”. Politicians should “end the subsidies of 70 billion euros annually for fossil fuels.”

At the same time, the DIW boss called for government support for low-wage earners. “To relieve people on low incomes who are hit hard by higher energy prices, politicians should pay them money directly,” he said.

The Green party is in favor of government measures

VAT

The Green politician Giegold also spoke out in favor of government measures against rising energy prices. “In the medium term, we need a rising CO2 price with social compensation and, in the short term, relief for citizens through falling taxes on energy,” he also told the “Handelsblatt”. Now the delayed energy turnaround is taking revenge, said Giegold. “We are experiencing a price crisis in fossil fuels.”

The 2 most important questions about VAT

How does the VAT system work?

In Germany, sales tax is one of the state’s most important sources of income. The companies themselves are responsible for determining the sales tax on their goods or services. You have to register the tax with the tax office and pay it on time. The company’s price calculation already takes sales tax into account:

Determined costs per unit
+ profit margin
= net price
+ sales tax
= gross price

Sales tax is a consumer tax, because ultimately the customer pays it with the price.

Do I have to pay VAT as a private customer?

Every purchase in Germany is charged with German VAT. Yes, this tax has to be paid. It is already included in the sales prices of the products or services. Incidentally, sellers (including online retailers) are obliged to show the prices for end consumers including tax. However, the buyer has nothing to do with registering the tax with the tax office.

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