Giving value added tax an ecological and social dimension

Zero percent on plant-based food staples and public transport

Ein Marktstand mit GemüseClick to enlarge
Market stand with vegetables
Source: Volker Gerstenberg / Fotolia

The German Environment Agency (UBA) has proposed aligning VAT more closely with ecological and social criteria. The core of the "Climate and Environment Relief Package" is to exempt plant-based staple foods such as fruit, vegetables, grain products and vegetable oils and public passenger transport from VAT altogether. This will lighten the burden on private households by around six billion euros a year. In addition, exemption from VAT is to be granted for solar systems, and heating optimisation and repairs are to benefit from the reduced tax rate of 7 instead of 19 percent. UBA President Dirk Messner said: "Environmentally friendly products should be made cheaper, and environmentally harmful products should no longer be subsidised by the state with excessively low taxes. Our climate and environment relief package focuses on the sharp rise in food prices and mobility costs. It provides immediate relief for household budgets and protects the environment at the same time."

The VAT in Germany is regulated by a chaotic set of individual rules. Ecological concerns are not taken into consideration, social concerns only partially so. Some regulations even encourage environmentally harmful consumption patterns, for example the reduced VAT on animal products is an environmentally harmful subsidy because it favours environmentally harmful products.

Based on a first estimate, a VAT exemption for plant-based staple foods such as fruit, vegetables, cereal products and vegetable oils would relieve private households of about 4 billion euros per year. Households with low incomes would benefit the most, relatively speaking. In addition, this would also help people who have benefited relatively little from the two previous relief packages, such as pensioners with low incomes. UBA President Dirk Messner said: "The VAT exemption for plant-based staple foods counteracts the high rise in food prices. It should be implemented as soon as possible, because everyone in Germany should be able to afford a healthy and climate-friendly diet.

A VAT exemption for public transport also makes sense. Lower income population groups in particular are often dependent on public transport. They will be relieved to an above-average extent if public transport and regional and long-distance transport by bus and train become cheaper. UBA President Dirk Messner said: "The VAT exemption for public transport is a good complement to the 9-euro ticket adopted by the Federal Government. It provides lasting relief and thus creates an incentive to make greater use of public transport. This also protects the climate." According to an initial estimate, the relief here could be in the order of two billion euros per year.

The UBA also proposes tax concessions for climate protection measures. For example, as of April 2022, the new EU VAT Directive now allows the supply and installation of solar systems to be completely exempt from VAT. In addition, heating system modernisations and other energy-efficient renovations can be taxed at a reduced rate. The UBA proposes to first promote heating optimisations through a reduced tax rate. The VAT rate for the repair (not the repair material) of shoes, leather goods, clothing, bicycles and household linen should also be reduced from 19 to 7 percent. This is already common practice in nine EU Member States. In addition, VAT should be waived on donations in kind from companies to non-profit organisations in order to curb the destruction of usable returns.

In return for these numerous benefits, subsidies for products which harm the environment and climate should be phased out at a later date. This concerns in particular the reduced VAT of seven percent for meat and other animal products, which would be taxed at the regular 19 percent in the future. Plant products have only a fraction of the climate footprint of animal products: for example, seven to 28 kilograms of greenhouse gases are emitted for one kilo of beef, and less than one kilogram for one kilo of vegetables. Dirk Messner said: "In Germany, two thirds of the greenhouse gas emissions from our diet are due to the consumption of meat, sausage and dairy products. If we eat less animal products, this directly helps the climate. However, since the prices for animal products are currently rising sharply, it would be advisable for social reasons to postpone this tax adjustment until later - and to relieve the burden on consumers quickly by offering cheaper bread, fruit and vegetables first." For certified organic animal products, it should be examined whether the privileged treatment can be maintained.

UBA's reform package considers the April 2022 amendment to the European VAT System Directive, which gives EU member states greater scope to design VAT with social and environmental considerations in mind. The proposals for national reform of VAT build on a study by the Öko-Institut, which was carried out on behalf of UBA, but was completed before the amendment of the VAT System Directive.

Umweltbundesamt Hauptsitz

Wörlitzer Platz 1
06844 Dessau-Roßlau

Grafik mit Bebilderung der einzelnen Vorschläge.
Grafik Entlastungspaket Klima und Umwelt
Source: Umweltbundesamt
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