Germany To Lower Sales Tax On Gas To 7% In Bid To Relieve Consumers

Germany will lower the sales tax on gas to 7% in an effort to cushion the blow of additional charges being placed on consumers to ensure energy companies can afford increasingly expensive supplies, said Chancellor Olaf Scholz on Thursday.

The reduced tax rate will apply as long as the levy is charged, meaning through March 2024, added Scholz.

Germany had been in talks with the European Commission this week to find another way to reduce the cost burden on consumers after the commission had said Germany’s bid for an exemption on value-added tax was not possible. 

The measure comes after levies were announced this week that will tack on hundreds of euros to an average family’s energy bill.

The levies will be imposed from Oct. 1 in a bid to help Uniper  – the country’s largest importer of Russian gas and other importers cope with soaring prices.

For an average family of four, the charge will amount to an additional annual cost of around 480 euros, or an increase of about 13% on the Verivox price comparison platform’s calculation of an average gas bill of 3,568 euros based on usage of 20,000 kWh/year.

“The alternative would have been the collapse of the German energy market, and with it large parts of the European energy market,” Economy Minister Robert Habeck said on the levy.

Germany’s Russia-dependent energy model had failed and would not be returning, he told reporters. “We need to change in a hurry … In doing so, we sometimes have to take bitter medicine,” Habeck said, arguing for targeted relief to help households.

Utility EnBW (EBKG.DE), which is also exposed via its VNG (VNG.UL) gas division and took a 545 million euro profit hit in the first half of 2022 as a result of lower Russian supplies, said it would take advantage of the levy, unlike RWE (RWEG.DE).

Industry will also be subject to the charge, with the German Steel Federation saying it would add around another 500 million euros a year to the sector’s energy bills, on top of 7 billion euros in extra costs already attributed to high energy prices.

“The gas surcharge significantly increases the cost pressure already exerted on the steel industry by the extreme price increases on the energy markets,” its President Hans Juergen Kerkhoff said.

Economists warned that the levy would further accelerate inflation in Europe’s largest economy, which is already running at an elevated 8.5%, with some relief measures such as low-cost public transport tickets set to expire.

“The gas levy is expected to increase inflation, including the value-added tax, by almost one percentage point,” said Commerzbank chief economist Joerg Kraemer, adding that the measure adds to mounting signs the German economy could slip into recession this winter.

The Federation of German Industries called for business support measures after Chancellor Olaf Scholz on Thursday promised an additional relief package for households. 

Germany is also awaiting a response from Brussels on a VAT exemption for the levy. 

Russia has throttled gas flows to Germany, blaming technical problems and the red tape of Western sanctions for a drop in deliveries via the key Nord Stream 1 pipeline to 20% of its capacity. Berlin has called the reductions politically motivated.

($1 = 0.9800 euros)

Source: Reuters

Source: Reuters