Germany’s ruling Grand Coalition Government is currently forging ahead with plans to introduce new tax reductions, four months ahead of the elections. Structured over two years, the support measures are to be financed by an increase in debt.
Despite spiralling debt, Christian Democratic Union (CDU) Party Chairman Volker Kauder and Social Democratic Party (SPD) leader Peter Struck have, in principle, agreed on tax cuts totalling in excess of EUR3bn.
Measures in support of small businesses lie at the heart of the proposals, including an initiative designed to ease the burden of turnover tax, a proposal to increase the tax exemption limit, and a proposal to reduce agrarian diesel tax to benefit farmers.
Regarding turnover tax, the government is planning to extend a special rule known as “Ist-Besteuerung” which applies to small companies and allows delayed payment of the tax. Up until now, companies realising a turnover of less than EUR250,000 the previous year have been able to pay their turnover tax upon receipt of payment from their customers. However, in former East Germany, this limit was set at EUR500,000, though limited until the end of the year. The German government is now proposing that the higher limit apply to all companies throughout Germany for a period of two years.
Plans also include a measure to increase the tax exemption threshold from EUR1m to EUR3m, and a measure to introduce a special clause or “Sanierungsklausel” to relieve the burden on businesses by allowing losses incurred from newly acquired businesses to be included when calculating existing company profits.
Germany’s Coalition government has already introduced two stimulus packages worth in the region of EUR80bn for 2009 and 2010. Additional measures have also been implemented to support those on reduced working hours, including tax reductions and cuts in contributions. According to Chancellor Angela Merkel (CDU), these packages have served to avoid an economic disaster.
A third stimulus package has, up until now, been ruled out by the government.
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