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Switzerland Rules Out Replacing VAT With Energy Levy

by Ulrika Lomas, Tax-News.com, Brussels

27 November 2013


The Swiss Federal Council has rejected a popular initiative calling for value-added tax (VAT) in Switzerland to be replaced with a tax on energy.

While underlining its support for the overarching aim of the initiative, the Federal Council nevertheless warned against plans to abolish VAT in Switzerland. Highlighting the fact that VAT is the main source of income in the Confederation, the Federal Council pointed out that VAT is also an increasingly important source of financing for the country's social insurance regime. Emphasizing that VAT is considered to be an "efficient tax" internationally, the Federal Council maintained that the levy is also a good complement to the progressiveness of the Confederation's individual income tax system.

Furthermore, the Federal Council argued that in order to guarantee the public finances, in the event that VAT were to be abolished, the rate of the proposed energy tax would have to be "very high." Indeed, the rate would have to be raised beyond a level that could be justified by energy and climate policy, the Federal Council explained. In addition, the rate would have to be subsequently increased, as households and businesses in Switzerland consume less energy from non-renewable sources.

Concluding, the Federal Council insisted that plans to replace VAT with a tax on energy would merely serve to significantly increase the fiscal burden on companies. Given that VAT is largely neutral for external trade, a tax on energy would therefore penalize domestic companies compared to their foreign competitors, the Federal Council noted. Finally, the Federal Council said that an energy tax would adversely affect low-income households in particular, and made clear that companies and individuals would not have sufficient time to prepare for such a major tax reform.

In a message addressed to the Federal Chambers, the Federal Council therefore recommended to the people and the cantons in Switzerland that the initiative be rejected.

Put forward by the Green Liberal Party of Switzerland in December 2012, the initiative advocates the introduction of a tax on non-renewable energy in Switzerland, including oil, natural gas, coal, and uranium, to enable the Confederation to achieve its climate and energy policy objectives. To compensate for the additional tax burden, the party suggested abolishing VAT. The party aims to increase energy efficiency, promote renewable energy, and reduce carbon dioxide emissions.

Switzerland currently levies VAT at a headline rate of 8 percent, a reduced rate of 2.5 percent, and a special 3.5 percent rate for hoteliers. Although the Swiss Federal Council remains committed to maintaining its primary source of income, attempts to simplify and reform the current system have been blocked by lawmakers, including plans to unify the two reduced rates of VAT.

TAGS: individuals | VAT rates | tax | business | value added tax (VAT) | energy | law | insurance | tax rates | Switzerland | tax breaks | tax reform | trade | individual income tax | services | VAT goods & services classification

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