The End of Reduced VAT in Luxembourg: Implications for State Coffers and Consumer Prices

2023-12-22 15:42:51

Published22. December 2023, 4:42 p.m.

In Luxembourg: The end of reduced VAT means a quarter of a billion in state coffers

LUXEMBOURG – On January 1, VAT will return to its normal level, after a year of reduction decided by tripartite due to inflation.

Will the VAT increase be felt on prices?

AFP

Prices are expected to increase slightly again on January 1st. Indeed, the end of the year will mark the end of a measure desired by the previous government to help residents cope with galloping inflation at the end of 2022. The tripartite had therefore decided to temporarily reduce VAT rates by one point during the year 2023. The normal rate went from 17% to 16%, the intermediate rate from 14% to 13% and the reduced rate from 8% to 7%. A cost of 317 million euros was then mentioned.

Asked about the return to usual VAT rates by Pirate MP Sven Clement, CSV Minister of Finance Gilles Roth affirms that this return to normal was anticipated in the preliminary work for the state budget in 2024 and that its effect “is taken into account in the latest figures”. According to the minister, this will represent 245 million euros in additional revenue for the State.

A little-felt decline

Gilles Roth qualifies, however, since according to him, “these are estimates strongly influenced by the economy and the purchasing power of citizens”. These elements “certainly play a more important role in forecasting total revenues than the return of the normal tax rate to 17%”.

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It remains to be seen how this increase will impact prices. When VAT fell, it did not curb inflation as much as it could have. Statec had measured the effect of the reduction and noted that it had not been fully passed on to prices. Will the increase be felt more? Answer at the beginning of January, on the shelves of your stores.

20 million for gambling

Tax revenues from gambling rose to 20.1 million euros in 2022, indicates Gilles Roth, the Minister of Finance. A little less than in 2021 (21.1 million euros).

Note that the coalition agreement plans to strengthen controls and sanctions against unauthorized actors who operate games of chance in their businesses, in particular in order to better combat illegal games of chance in cafes and other public places.

(jw)

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