VAT cut: where consumers can save from July

Updated June 27, 2020, 5:40 p.m.

On July 1st, VAT drops by three percentage points. Then consumers should have to pay less – at least in theory. Not all retailers will pass this on to their customers. Can you just cut the bill yourself?

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Germans will pay less VAT in the second half of 2020. Many companies have already announced that they want to lower prices.

But do consumers benefit in any case? Consumer advocates answer the most important questions.

What is planned?

The temporary reduction in sales tax, usually known as VAT in Germany, is part of the corona stimulus package of the grand coalition. It is to apply from July 1 to December 31, 2020.

The tax rate will be reduced from the current 19 to 16 percent, the reduced tax rate – which mainly applies to food – from 7 to 5 percent.

What does the VAT cut mean for consumers?

In theory, the calculation is simple: If you currently pay a net price of 100 euros for a product with the regular VAT rate, you have to put 119 euros on the counter including the tax.

In the future, this would be three euros less – provided that the trade also adjusts the prices accordingly.

Do companies have to lower prices?

No! According to the Consumer Advice Center North Rhine-Westphalia, companies, service providers and business people are free to maintain their prices and thereby increase their profit margins within the framework of normal pricing.

And according to the price regulation, customers must be given the final price of goods and services including all taxes and additional costs. It is only in contracts where VAT is shown separately that consumers can check whether the reduction is passed on or not.

Important to know: Customers are not allowed to independently reduce invoices by 3 percent. Because the VAT rate drops from 19 to 16 percent – mathematically, however, this does not correspond to a total discount of 3 percent, but only around 2.5 percent. Experts warn that anyone who cuts claims unilaterally may also be in default with their payments.

Who wants to cut prices?

In competitive industries such as food retailing and high-priced expenses such as furniture or cars, the consumer association Bundesverband (vzbv) is likely to pass it on to consumers.

Grocery discounters, bakeries, furniture stores and shoe retailers, as well as Deutsche Bahn, have already stated that they want to pass the low tax rates on to their customers in full.

The restaurateurs, who were particularly hard hit by the corona crisis, as well as individual companies, have announced that they will not pass on the reductions or will not apply them to all products.

Will prizes be awarded from July 1st?

Not necessarily. If retailers and service providers want to pass on the VAT reduction to their customers, they do not have to change the price display on the shelves or on notices in one fell swoop.

You can also grant discounts at checkout. The retailer can also freely decide whether this should apply to the entire range or only to certain products or product groups, explains the consumer center.

What if a product was ordered earlier but is only delivered after July 1st?

The date of the delivery or the service rendered is usually decisive. If the delivery is sent, the date of dispatch applies, not that of the order.

For example: if a customer requested an offer for a renovation at the beginning of the year, which should be carried out between July 1 and December 31, 2020, only 16 percent VAT can be used in the invoice.

It is now irrelevant that 19 percent has been included in the cost estimate. Even if the craftsman only sends his invoice after December 31, 2020, the 16 percent VAT rate from the period of the service provided still applies. This also applies to partial services.

If, on the other hand, a gross price has been agreed that includes VAT, it remains at the originally agreed amount – regardless of the currently applicable VAT rate.

What applies if a product has already been paid for?

If advance payments have been made on the purchase, the final invoice for goods delivered after July 1 must be taxed at the reduced VAT rate of 16 percent. This means that the invoice must be corrected because the period of the service is decisive.

Customers have already paid a higher share of the total amount with the down payment made. However, this only applies if the net price plus VAT is shown. (ff / dpa / afp)