“For each taxable transaction, the tax is 19 percent of the assessment basis,” says the Sales Tax Act. But it’s not that simple after all, hundreds of exceptions are regulated in detail below. The Federal Court of Auditors is pushing for a significant streamlining.
The Federal Audit Office sees an urgent need for reform of sales tax and recommends “fundamentally revising the catalog of tax reductions”. Further tax breaks should be avoided and existing concessions consistently abolished, write the examiners in a letter to the members of the Finance Committee in the Bundestag.
Specifically, the point is that some goods and services are exempt from the full tax rate, instead of the normal 19 percent, sales tax is 7 percent. This sometimes leads to regulations that are difficult to understand. For example, 19 percent sales tax has to be paid for hot coffee with a dash of milk. However, if the milk content is at least 75 percent, the sales tax is 7 percent. Excluded is a coffee with plant-based milk substitutes such as soy milk – here again 19 percent are due.
“The annual tax benefit from the reduced sales tax rate is almost 35 billion euros,” says the report. The catalog of reductions also leads to delimitation difficulties, write the auditors, for example when it has to be determined “from when the swimming pool (reduced tax rate) becomes a fun pool (general tax rate)”. As early as 2010, the Federal Court of Auditors pointed out the urgent need for reform of the reduced VAT rate, according to Tuesday’s letter. “Instead of a sweeping reform, the catalog of tax reductions has been expanded.”