Scholz reduced VAT on gas sales to 7% to compensate for another tax

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Scholz reduced VAT on gas sales from 19% to 7% to offset the electricity levy The measure is intended to alleviate the burden on households suffering from rising electricity prices and a new levy of 2.4 eurocents per kilowatt-hour of electricity, which the German authorities announced in late July

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Chancellor Olaf Scholz announced a reduction in value-added tax on gas sales from 19% to 7% from October 2022 to March 2024, reports Der Spiegel.

“With this step, we reduce the burden on gas consumers in general, much more than the burden created by the gas tax. This reduced VAT rate will apply as long as the gas levy is in effect,— said the chancellor.

This is a surcharge of 2.4 eurocents per kilowatt-hour of electricity, which the German authorities announced at the end of July. It, like the new tax break, will be valid from October 2022 to March 2024.

According to the Financial Times, the fee would cost an additional €484 a year for the average family of four.

Bloomberg estimates that Scholz's announced VAT cut could cost the German budget around €14 billion in lost revenue. It will also reduce the inflation rate in Germany by about 0.7 percentage points. in the last three months of this year, the director of the Institute for Economic Research IMK, Sebastian Dullien, told the agency.

The rise in world prices for oil, gas and other fossil fuels has been going on since the end of February, when Russia announced the start of a special military operation in Ukraine. In this regard, the EU, of which Germany is a member, has imposed seven packages of sanctions against Russia, including a ban on the import of Russian coal and a partial embargo on oil supplies.

In response to the sanctions, President Vladimir Putin converted payments for Russian gas into rubles. In addition, the Russian “Gazprom” in mid-June announced a reduction in gas supplies through Nord Stream 1— the main route for gas supplies to Germany,— from 167 million to 100 million cubic meters m per day, explaining this by the “untimely return of gas pumping units from repair by Siemens” at the compressor station “Portovaya”. By the end of July, the export of Russian gas via the Nord Stream reduced to 20% of the nominal capacity of the gas pipeline (up to 35 million cubic meters per day).

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Before the conflict in Ukraine, Russian gas was about 55% from everything imported by Germany. As of July 20, the share of Russian gas supplies has dropped to 26%, according to a report by the German Ministry of Economy and Climate Protection.

After the reduction in gas pumping through Nord Stream, Scholz called Russia “an unreliable supplier.” According to him, Moscow's statements that gas supplies were cut for technical reasons are unconvincing.

German Vice Chancellor Robert Habek has not previously ruled out that Russia will completely cut off gas supplies as part of an attempt to “ignite social unrest and destroy unity. The lack of gas will lead to the cessation of the work of a number of sectors of the German economy, he specified. The Kremlin rejected this assumption, saying that “Russia is very, very careful about its reputation, the reputation of a responsible supplier.”

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