Germany Raises More Tax To Pay For Counter-Terrorist Measures

by Ulrika Lomas, Tax-News.com, Brussels

20 September 2001

The German cabinet on Wednesday approved a wide-ranging package of measures as part of the government's commitment to combat terrorism, whose $1.4bn cost will be financed by an increase in the non-life insurance tax from 15% to 16% and by a 4-euro additional tax on a carton of cigarettes (200). Both measures will come into effect on 1st January.

Finance Minister Hans Eichel said the measures were sufficiently narrow to have only a very limited impact on consumer confidence and economic growth. "This will not hit anyone particulary hard," said Mr. Eichel. Any additional expenditure would depend on how the international situation develops, he said. The Minister had previously ruled out tax increases this year, but said that last week's events had created an entirely new set of circumstances.

The $1.4bn (DM3bn) will be spent to upgrade national security. The money will be distributed among all security institutions, including Germany's armed forces. A new "paragraph on terrorism" is to be introduced into the criminal code. It will extend a law banning support for German-based terrorist organizations to groups that are based abroad. The existing law made it difficult to persecute members of foreign terrorist groups living in Germany, as investigators had to prove that the group maintained a cell here.

Greater efforts will be undertaken to fight money laundering and cut off funds to terrorists. Penalties for large-scale tax evasion will be stiffened, and the definition of this offense broadened; if, for example, funds obtained through tax evasion are invested by a second person, he or she will be liable to additional punishment under laws against money laundering. Hans Eichel said it was of paramount international importance to stop the flow of money to terrorists.

Assuming that the Bundestag accepts these measures (and yesterday it overwhelmingly approved a declaration of solidarity with the US by 565 votes to 40), then investing institutions may have to take elaborate precautions to ensure that money they are handling is not the result of tax evasion. This is certainly not something they do at present, and if such rules are applied only in one country then it's easy to see that money to be invested will promptly skip to another, more lenient jurisdiction.

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