German minister writes to Brussels over VAT exemption for gas levy

BERLIN: German finance minister Christian Lindner has written to the European Commission seeking permission to waive value-added tax on a new gas price levy for a limited period of time, a copy of his letter seen by Reuters showed on Sunday.

Germany’s gas market operator is set to announce on Monday the size of the levy, which Berlin is imposing on all gas consumers to spread the additional cost of gas imports.

The levy is aimed at helping Uniper and other importers cope with soaring prices due to reduced Russian export flows, but it would add to already sky-high energy prices and inflationary pressures for customers.

Under EU law concerning VAT on energy products, the levy is considered a component of the overall gas price, effectively meaning it is mandatory, which is why Germany needs to ask for Brussels’ permission to waive it.

Lindner said that while he was asking on behalf of Germany, he was effectively asking for a VAT law change that would give all member states the temporary option to make similar moves.

Lindner’s English-language letter, dated Aug. 12, said Germany would apply formally to the EC later but he wanted to appeal to Brussels beforehand to persuade authorities that policymakers were concerned about possible hardships and resentment.

“VAT on government-imposed levies pushes up prices and is met with increasing opposition from the population, especially in the current exceptional situation,” he said.

“However, the population’s acceptance of tax laws is crucial for their enforceability,” it said.

Russia since mid-June has drastically cut flows to Europe via the Nord Stream 1 pipeline and currently supplies just 20% of agreed volumes, blaming faulty and delayed equipment, while Europe says the move has been politically motivated.

Utilities - wedged between importers and squeezed end consumers - fear being stuck with back-breaking costs.

“Rising energy prices are a threat to our prosperity and stability,” Lindner said.

The government so far expects a levy of between 1.5-5.0 euro cents per kilowatt hour (kWh) on consumers to pay for 90% of the higher cost of wholesale gas, plus an as yet unspecified levy for gas storage due to be published on Aug. 18.