Reduction of value added tax on gas

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Federal Cabinet Reduction of value added tax on gas

Rising energy prices are already a great burden for many citizens. For this reason, the Federal Government decided to temporarily reduce the value added tax rate for the supply of gas. The Federal Cabinet adopted a draft wording for the German Bundestag for this purpose.

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Gas meter in a private household and bank notes

The goal is to reduce the increase of prices for gas customers.

Photo: IMAGO/MiS

The “law for the temporary reduction of the value added tax rate for the supply of gas via the natural gas grid” provides that the value added tax rate for gas delivery will be reduced from 19 to 7 percent from October 2022 and until March 2024. This measure is part of the third relief package. The reduction in tax income for this period amounts to an estimated 11.3 billion euros.

Value added tax is an indirect form of taxation that is designed to be generally passed on to consumers by businesses. The same rule must apply the other way round: the Federal Government expects businesses to pass on the full amount of the tax reduction to consumers.

Reducing the burden

The gas procurement surcharge will be levied between 1 October 2022 and 31 March 2024. Just like the charge for gas supply, this surcharge is subject to value added tax. However, gas purchasers should not incur an additional burden due to the mandatory collection of value added tax on the gas procurement surcharge.

This is why VAT on the supply of gas will be reduced from 19 to 7 percent, for the same period in which the gas procurement surcharge will be levied: from 1 October 2022 until 31 March 2024. This is to reduce the burden on gas customers due to the gas procurement surcharge.

The effect of the VAT reduction:
According to Federal Government calculations [*], the gas surcharges, which will apply as of October, will amount to a total of approximately 660 euros for a four-person household with a gas consumption of 20,000 kilowatt hours per year. In turn, the VAT reduction from 19 to 7 per cent as planned by the Federal Government will reduce the burden on this household by just under 400 euros a year. The gas surcharges will help gas importers cover the high replacement costs, thereby safeguarding the security of supply for our country.

[*] Calculation basis: net gas price 13.5 ct/kWh, net gas surcharges 3.1 ct/kWh (gas procurement surcharge 2.4 ct + gas storage surcharge 0.1 ct + accounting surcharge 0.6 ct)

More information about the temporary reduction of VAT on the supply of gas is available on our FAQ page.