The German federal government will reduce VAT on natural gas to deal with rising prices. The tax will be reduced from the current 19% to 7% between October 2022 and March 2024, the chancellor, the Social Democrat Olaf Scholz, announced on Thursday.
The objective is to compensate citizens for the impact on the bill of a new rate on gas that will come into force in the fall. The Government will announce further measures in the coming weeks to help citizens and businesses deal with escalating energy prices.
Impact on the State budget:
The lowering of VAT will cost 14,000 million euros to the public coffers, according to government calculations. “With this measure, we alleviate gas customers in general to a much greater extent than the additional burden caused by the new levy,” Scholz said of the new gas rate, which will also come into effect in October.
This surcharge has been set at 2.419 euro cents per kilowatt hour (excluding VAT), which will generate an extra cost for a family of four in a single-family home of around 480 euros per year.
The beneficiaries of the rate will be the supplier companies affected by the additional costs caused by the substantial reduction in imports of Russian gas, which they have to compensate for with the purchase of alternative gas at higher prices and which in some cases threatens their viability.
Germany is one of the EU countries that is most dependent on Russian gas. Until the invasion of Ukraine, this covered 55% of its demand. But Russia has drastically reduced supply through Nord Stream 1, the main gas pipeline to Europe, to just 20% of its capacity, forcing German gas companies to buy at higher prices, outside of contract.
The tax reduction, which will go from the current 19% to 7%, will be in force until March 2024