Reduction of VAT on products and services for children
“7% für Kinder“ (english: “7% for kids“) is a German alliance of a wide range of stakeholders from the social and business sectors, who conjointly advocate a reduction of the value added tax (VAT) to 7 per cent on typical products and services for children.
Political objectives
Families spend a huge part of their income on supporting and raising their children. This includes the daily shopping in the supermarket, as well as the spending for the baby carriage, new shoes, when the old ones were getting to tight once again, the monthly fee for catering at school or at the nursery and the purchase of books, pencils and other school stuff each year.
Despite the number of products and services falling under the reduced VAT rate has been growing throughout the last years, children and their requirements has been ignored constantly. Child clothes and children’s shoes, baby diapers, child car seats, school and nursery lunches – for all these products, in Germany, the full VAT rate of 19 percent is charged and not the reduced rate of 7 percent. This means a considerable financial burden to families.
Therefore, we find it necessary to use the reduced VAT rate also on products and services for children.
Why
Consumption taxes such as VAT burden in particular families, who must ensure their basic needs with a relatively low income. This is for all families with children and especially for single-parent families and families with more than two children, because they spend a disproportionately large share of their income on the care and bringing up of their children.
The good and healthy growth of children is a social necessity. Their needs are among the basic needs of our society, they should therefore be considered in the policy. The reduced rate of VAT on children's products translates to a resounding Yes! towards social responsibility for children. It is part of a family-friendly policy that makes life with children attractive and promotes family-friendly conditions. The social gap between rich and poor must not continue to diverge. The reduced rate of VAT contributes to relieve families and reduce poverty. It thus also helps to achieve the social objectives of the EU2020 strategy.
Facts and Figures
Given that only 7 percent VAT were charged for children’s products, our calculations showed that parents could save about 200 Euro when purchasing their basic baby equipment, including diapers, rompler suits, baby bottles and all other things which are needed for the newborn. Spending for starting school could be reduced by around 40 Euro and the expenses for new clothes and shoes for children could be diminished by up to 60 Euro a year. These figures make clear that families could really be backed up - considering the number of things which children need while they are growing - by using the reduced VAT rate on products and services for children.
Background
The reduced VAT rate was introduced in Germany in 1968 for socio-political reasons. Every person should be able to fulfil his or her basic needs and participate in social life – even in case of a low income. This is why products like food, newspapers or public transport come under the reduced VAT rate. In recent years there has been a debate about the VAT in general – not only in Germany, as the European Commission’s Green Paper on the future of VAT shows. However, in Germany some scientists and policy makers vote for a complete abolition of the reduced VAT rate, others want it to remain, but only covering food. In 2009, the German Federal Government agreed to revise the current VAT system, but no decision has been taken up until now.
“7% für Kinder” emphatically rejects the abolition of the reduced VAT rate. We share the opinion, that the list of products to which the reduced rate is applied needs to be reviewed in order to make it more reasonable and transparent. Nevertheless, the reduced VAT rate for basic goods must be sustained for socio-political reasons.
The general tendency in Europe to increase indirect taxes (such as VAT) and in return reducing direct income tax is a step in the wrong direction. Without a reduced rate of VAT, prices for the basic necessities of life would increase significantly. This would especially burden persons with lower incomes as well as families with middle and low income, single-parent families and large families. They incur additional consumption expenses, for the raising and care of their children, which cannot be restricted any further. If the reduced rate of VAT were to be abolished, those families with children would be seriously affected by the additional costs.
European level
Tax law falls indeed within the scope of European standardization. Thus, in the European Union there is a binding list of products upon which the states may apply the reduced VAT rate. Up until now, only very few child products are present on this list. In 2008, the EU- Commission as well as the European Parliament promoted to include more child products in this list. Very much to the regret of the AGF and countless national and international associations, the EU council of ministers for economy and finances (ECOFIN) decided in March 2009 not to extend the list to include products relevant to children e.g. baby diapers, child clothes and children's shoes. A decision, which, in view of the European year against Poverty and Social Exclusion, met with great disappointment and bewilderment. Last, but by no means least, an important step had been missed through these decisions, namely the dismantling of the structural disadvantages for families.
About us
The Association of German Family Organisations (AGF) e.V. and the German retailer for children’s fashion, toys and accessories, JAKO-O, initiated the campaign “7% für Kinder”, which is to date supported by several partners from different areas of society. We all share the belief, that providing for a decent childhood is a shared duty of the whole society. Policy makers must take children’s needs into greater account. The reduction of the VAT for typical children’s products and services would substantially contribute to this objective.