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Supermarkets pass on reduced VAT to customers

VAT has been reduced in Germany since July. But dealers don’t have to pass the lower tax on to customers. A new study now shows: Supermarkets do this – almost completely.

According to an investigation by the Munich-based Ifo Institute, the supermarkets in Germany have almost completely passed on the VAT, which was lowered due to the Corona crisis, to customers. The prices fell by an average of two percent, as the Ifo announced on Monday. The institute examined the prices of 60,000 products in the online shop of the retail chain Rewe.

The federal government had lowered the value added tax on July 1 – the full rate is 16 instead of 19 percent, the reduced rate is 5 instead of 7 percent. The Ifo found that the VAT cut resulted in greater price reductions for product groups with more intense competition than for product groups with less intense competition.

Prices could soon rise faster

“This is surprising, because studies on other temporary sales tax reductions show that these were only partially passed on and increasingly less passed on over time,” explained the authors of the study.

It remains to be seen how prices will develop when VAT is again levied at the regular rate on January 1, 2021. There is a possibility that prices will then rise more sharply than they were previously reduced, explained the economic researchers. This effect has set in with some temporary reductions in other countries.

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