German Government Drops Plans For Cut In Local Business Tax

by Ulrika Lomas, Tax-News.com, Brussels

26 April 2005

The German government's plan to cut the rate of local business tax appears to have become the latest victim of the leadership's attempt to juggle its various fiscal priorities, as it seeks to clear the way for a decrease in corporate tax.

As the cabinet of Chancellor Gerhard Schroeder gears up to discuss the thorny issue of funding a cut in corporate tax to 19% from 25% in a meeting scheduled for early in May, a finance ministry spokesman revealed last week that proposals for a cut in local government business tax will no longer form a part of these plans.

The governing Social Democrats have been struggling since Schroeder announced the tax cut last month to come up with a revenue neutral way of bringing about the corporate tax cuts in order to win the support of the conservative opposition, which dominates parliament's upper house.

"We won't accept any company tax cuts financed on credit," Bavarian Finance Minister Kurt Faltlhauser stated last week, adding that current plans only allow room for a corporate tax cut to 22%.

Finance Minister Hans Eichel, the chief architect of the tax cut plan, has challenged to opposition to formulate solutions of their own to the funding problems.

Despite the setbacks, the government is hopeful that the tax cut will be approved before parliament's summer recess.

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