German Taxpayers' Alliance calls for VAT cut to offset electricity costs

DPA/The Local
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German Taxpayers' Alliance calls for VAT cut to offset electricity costs
A man writes on his laptop while working from home. Photo: picture alliance/dpa | Sina Schuldt

As consumers battle with eye-watering electricity costs, the head of the German Taxpayers' Alliance has called for a drastic VAT cut and an abolition of the electricity tax.


Speaking to DPA on Friday, Taxpayers' Alliance president Rainer Holznagel said that the discussion around high energy costs often neglected to mention how much the treasury benefits from these rising costs. 

This is because higher electricity prices also mean higher income for the government through taxes such as VAT, he explained.

Last year, the federal government earned additional revenue of about €12.5 billion through the newly introduced CO2 price.

READ ALSO: Why households in Germany face even higher electricity bills

Aimed at encouraging people to make more environmental conscious choices, this new levy charges consumers €25 for each tonne of CO2 released into the atmosphere when they purchase products such as petrol and gas.

Holznagel urged the traffic light coalition to make good on its promise to return the additional revenue from the CO2 price to the citizens.

He said this should be done by reducing VAT on electricity to just seven percent. 

Meanwhile, the electricity tax should be cut as far as EU competition laws allow, he said. 

Currently, tax on electricity stands at 19 percent, while the electricity tax adds a further seven percent onto people's electricity bills. 

Scrapping the EEG levy 

To support households with rising energy costs, the cabinet has recently agreed on a plan to offer a lump sum to lower-income groups in June.

Support is to be given to recipients of housing benefits, students receiving government support (BAföG) and people who are in receipt of vocational training allowances. Housing benefit recipients who live alone will receive €135 and two-person households will receive €175. This will then increase by €35 for each additional person living in the household.


Meanwhile students and trainees will receive a lump sum of €115.

"About 2.1 million people in Germany will receive a one-time heating cost subsidy from the federal government starting this June," said Construction Minister Klara Geywitz (SPD). Among them, she said, are pensioners, single parents or people who earn little. "They can't put up with rising energy prices so easily."

READ ALSO: German government to bring in heating allowance legislation ‘by March’

In an additional move to lower energy costs, the government has also promised to scrap the Renewable Energy Act (EEG) levy - a tax on energy that is used to fund renewable energy projects such as wind and solar. 

The government has already slashed the EEG surcharge by more than 40 percent and plans to scrap it entirely by January 2023 in an attempt to ease the burden of additional energy taxes on households.


But price comparison portals have claimed the effect of this tax cut hasn't been felt by consumers, who are facing the highest prices in years. 

Discussions are currently underway in the government to end the EEG levy as early as July and not at the beginning of next year as previously planned.

This is being examined legally and financially, the Federal Ministry of Economics told DPA, but a decision has not yet been made. 

When the EEG surcharge is gone, the corresponding billions of euros for the promotion of green electricity will have be compensated for in the budget.


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