Clemens Fuest, President of the Munich-based Ifo Institute, is advocating for the abolition of the seven percent reduced value-added tax (VAT) rate in Germany. Fuest proposed that all goods should be taxed uniformly at the current rate of 19 percent, aiming to simplify the system and generate additional state revenue. {claim:1} {claim:2} {claim:9}
Under the current system in Germany, a seven percent VAT rate applies to basic foodstuffs such as bread, milk, vegetables, and tap water, along with cultural goods like books, newspapers, and cinema tickets. Meanwhile, services and items such as mineral water, oat milk, and alcoholic beverages are subject to a 19 percent rate. {claim:12} {claim:13}
The different tax rates lead to unnecessary complexity, delimitation problems and arbitrary unequal treatment.
Fuest stated that the move should offer a chance to end VAT chaos without increasing the burden on the poorest households. To protect low-income families, he suggested they receive annual state credits. {claim:11} {claim:4}
Proposed annual credit for low-income households
The proposal estimates that the increased tax burden would primarily affect the half of the population with higher incomes, specifically those earning a gross income of approximately over 55,000 euros. {claim:6}
If the tax increase is fully passed on to consumers, prices could rise by up to twelve percent, though some observations note that companies may not pass the full amount on. {claim:7}
The report indicates that after deducting compensatory payments, more than 36 billion euros in additional revenue would remain for the state annually. {claim:8}
Fuest noted that all goods currently under the reduced rate, especially food, would become more expensive following the change. {claim:3}
In Denmark, a uniform VAT rate of 25 percent is applied to all goods.
