Berlin is planning to restore the 19% sales tax on gas and heat deliveries from the end of this year, according to the German government, as reported by Bloomberg on Monday. This move will effectively bring an end to the current discount rate three months earlier than originally planned. The value-added tax on natural gas was reduced from 19% to 7% in October of last year, in an effort to alleviate the financial burden on consumers amidst skyrocketing energy costs. The intention was for this reduced rate to remain in effect until the end of March 2024.
The decision to terminate the discount early was made by Berlin due to prices returning to a normal level more quickly than expected, said Wolfgang Buechner, deputy German government spokesman. He further noted that the necessary legislation to implement this change is being drafted. The restoration of the higher tax rate is projected to result in an increase of €2.1 billion ($2.2 billion) in public-sector tax revenue, according to Oliver Olpen, a spokesman for the country’s Finance Ministry.
Germany heavily relied on Russia for approximately 40% of its natural gas prior to 2022. However, due to the imposition of sanctions on Moscow by the European Union in response to the conflict in Ukraine, the supply of Russian energy to Germany was nearly completely halted last year. As a result, Germany was significantly affected by the reduction in energy deliveries.
A recent report from the German Economy Ministry indicated that gas prices in the largest economy in the European Union are likely to continue soaring and remain high until at least 2027, unless additional emergency measures are implemented.
In conclusion, Berlin’s decision to restore the 19% sales tax on gas and heat deliveries earlier than planned is a response to the rapid return of prices to a normal level. This change is expected to generate a significant increase in public-sector tax revenue. Germany’s reliance on Russian natural gas and the subsequent reduction in deliveries has contributed to the country’s energy challenges. Without further measures, gas prices in Germany are forecasted to remain high for the foreseeable future.
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