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How much will you save on products with Germany’s new VAT reduction?

From July 1st the VAT (value added tax) was reduced for six months, meaning many products will become cheaper. We looked at what that means for you.

How much will you save on products with Germany's new VAT reduction?
How much will you save in the last six months of 2020? Photo: DPA

When will VAT go down?

The standard VAT rate fell from 19 to 16 percent between July 1st and December 31st. The reduced rate, which applies to many foods and everyday goods, fell from seven to five percent.

It means lots of items in supermarkets, furniture stores, electrical stores and elsewhere are likely to become cheaper for six months.

Retailers are not obligated to pass on the discount to customers. However, lots of firms, such as supermarket retailers and Deutsche Bahn, have said that they plan to do this.

Retailers may change their price labels to reflect the discount or apply it at the till.

Why is it happening?

The measure is part of an aid package aimed at boosting the economy after the coronavirus pandemic shutdown. It is hoped by reducing value added tax to products, consumers in Germany will simply buy more to get the economy moving.

READ ALSO: How Germany's new multibillion aid package will benefit you

 

This step is intended to relieve the burden on low-income earners in particular, as VAT is often the only tax they pay in a large amount. It will cost the federal government around €20 billion.

The big question is whether the reduction will really bring the expected increase in consumption – or whether many people will wait until the crisis is over.

“The aim is for citizens to make a possible purchase decision now and not to postpone it until next year or the year after,” said Federal Finance Minister Olaf Scholz.

When it comes to buying food, the reduction will often only work out at a few cents less. But the tax cut will make a bigger difference for large purchases such as washing machines.

How much of an impact will it have?

Savings on everyday products will remain small but for larger purchases there will be a noticeable difference.

If a car previously cost €30,000, for example, the customer could in theory only have to pay €29,243.69 from July – in other words, around €750 less.

READ ALSO: What you should know about Germany's planned VAT cut

As well as citizens, the reduction will also benefit companies in all sectors, from gastronomy to the automotive industry, according to the government.

Here's some possible savings on products:

1 litre milk 3.5 percent fat – current market price: 79 cents – possible saving: 2 cents

VW Golf, basic model – current market price: €19,995 – possible saving: €504 

Levis ladies jeans – current market price: €85 – possible saving: €2.14

Fuel tank Golf E10 (50 litres) – current market price:  €58.37- possible saving: €1.47 

Billy bookshelf Ikea – current market price: €79 – possible saving: €1.90

Blood sugar measuring device Salter – current market price:  €39.99 – possible saving: €1.01

Garden shears Gardena – current market price:  €11.86 – possible saving: 30 cents

Nivea Skin Cream – current market price:  €1.16 – possible saving: 3 cents

Canon Camera 2000D – current market price:  €329 – possible saving: €8.29 

According to German news site Merkur, which analysed the VAT reduction plans, there could also be savings on other products such as bicycles, lamps or furniture (these products have a standard rate).

READ ALSO: Is Germany doing enough to ensure small businesses survive the coronavirus crisis?

The reduced rate applies to some foods, medical supplies, domestic transport, books, tickets to cultural events, flowers, e-books, audiobooks and periodicals, and short-term hotel accommodations.

What is VAT anyway?

Companies must add value added tax (VAT) to their prices. The tax is then transferred to the tax authorities on a monthly, quarterly, or annual basis.

According to EU law, EU Member States are required to levy a standard VAT rate of at least 15 percent and a reduced rate of at least 5 percent.

In Germany the VAT rate of 19 percent is just below the European average of about 21 percent. A reduced rate of 7 percent applies to certain consumer goods and everyday services (such as food, newspapers, local public transport and hotel stays). Some services (such as bank and health services or community work) are completely VAT exempt.

The official German term for VAT is Umsatzsteuer (USt), but it was originally called Mehrwertsteuer (MwSt) and is often still referred to by this name.

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For members

LIVING IN GERMANY

Living in Germany: Battles over Bürgergeld, rolling the ‘die’ and carnival lingo

From the push to reform long-term unemployment benefits to the lingo you need to know as Carnival season kicks off, we look at the highlights of life in Germany.

Living in Germany: Battles over Bürgergeld, rolling the 'die' and carnival lingo

Deadlock looms as debates over Bürgergeld heat up 

Following a vote in the Bundestag on Thursday, the government’s planned reforms to long-term unemployment benefits are one step closer to becoming reality. Replacing the controversial Hartz IV system, Bürgergeld (or Citizens’ Allowance) is intended to be a fair bit easier on claimants.

Not only will the monthly payment be raised from €449 to €502, but jobseekers will also be given a grace period of two years before checks are carried out on the size of their apartment or savings of up to €60,000. The system will also move away from sanctions with a so-called “trust period” of six months, during which benefits won’t be docked at all – except in very extreme circumstances. 

Speaking in parliament, Labour Minister Hubertus Heil (SPD) said the spirit of the new system was “solidarity, trust and encouragement” and praised the fact that Bürgergeld would help people get back into the job market with funding for training and education. But not everyone is happy about the changes. In particular, politicians from the opposition CDU/CSU parties have responded with outrage at the move away from sanctions.

CDU leader Friedrich Merz has even branded the system a step towards “unconditional Basic Income” and argued that nobody will be incentivised to return to work. 

The CDU and CSU are now threatening to block the Bürgergeld legislation when it’s put to a vote in the Bundesrat on Monday. With the conservatives controlling most of the federal states – and thus most of the seats in the upper house – things could get interesting. Be sure to keep an eye out for our coverage in the coming weeks to see how the saga unfolds. 

Tweet of the week

When you first start learning German, picking the right article to use can truly be a roll of the “die” – so we’re entirely on board with this slightly unconventional way to decide whether you’re in a “der”, “die”, or “das” situation. (Warning: this may not improve your German.) 

Where is this?

Photo: picture alliance/dpa | Boris Roessler

Residents of Frankfurt am Main and the surrounding area will no doubt recognise this as the charming town of Kronberg, which is nestled at the foot of the Taunus mountains.

This atmospheric scene was snapped on Friday morning, when a drop in temperatures saw Kronberg and surrounding forests shrouded in autumnal fog.

After a decidedly warm start to November, the mercury is expected to drop into single digits over the weekend. 

Did you know?

November 11th marked the start of carnival season in Germany. But did you know that there’s a whole set of lingo to go along with the tradition? And it all depends on where you are. First of all, the celebration isn’t called the same thing everywhere. In the Rhineland, it’s usually called Karneval, while people in Bavaria or Saxony tend to call it Fasching. Those in Hesse and Saarland usually call it Fastnacht. 

And depending on where you are, there are different things to shout. The ‘fools call’ you’ll hear in Cologne is “Alaaf!” If you move away from Cologne, you’ll hear “Helau!” This is the traditional cry in the carnival strongholds of Düsseldorf and Mainz, as well as in some other German cities.

In the Swabian-Alemannic language region in the southwest of the country, people yell “Narri-Narro”, which means “I’m a fool, you’re a fool”. In Saarland at the French border, they shout “Alleh hopp!”, which is said to originate from the French language. 

Lastly, if someone offers you a Fastnachtskrapfe, say yes because it’s a jelly-filled carnival donut. And if you’re offered a Bützchen? It’s your call, but know that it’s a little kiss given to strangers!

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