German government to raise VAT on natural gas after reduction during energy crisis

The German government is set to increase value-added tax (VAT) on natural gas after temporarily lowering it in 2022 to counter gas price hikes related to Russia's war on Ukraine. The government now aims to reverse the temporary price reduction by the end of the year, three months earlier than planned, business daily Handelsblatt reports. The move has the backing of all government ministries, the newspaper adds. A government spokesman noted that war-related price spikes had now subsided. The government last year lowered VAT rates for gas from 19 to 7 percent. An increase to the previous level would mean an absolute increase of 11.2 percent in the middle of the heating season.

The finance ministry (BMF) said the reduction was planned as a short-term relief measure, pointing out that prices had recently fallen faster than expected. The return of higher VAT rates is estimated to add some 2.1 billion euros to state coffers. “Fortunately, war-related price spikes on the gas markets have now subsided,” a government spokesman said. “We have returned to a normal [price] level faster than was expected in 2022. The question therefore arises as to whether sales tax will still need to subsidise the supply of gas and district heating beyond 2023.” The government has already included the higher VAT rate in its draft budget for 2024, they added.