Aldi is getting cheaper: VAT reduction is passed on to customers

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The German economy has been hit hard by the ongoing Corona crisis – but the German government under Chancellor Angela Merkel has agreed on an economic stimulus package to avert the worst financial slumps.

For example, families should receive 300 euros per child, social security contributions should not exceed 40 percent in 2021, electricity prices should be kept stable and VAT should be reduced by the end of the year – from 19 to 16 or from 7 to 5 percent (depending on whether the products are classed separately).

The discounters Aldi Nord and Aldi Süd want to pass on the lower tax to customers in the form of lower prices, as the “Lebensmittelzeitung” reports. A company spokesman said the discounter family wanted to help “German consumers cope with the economic impact of the corona crisis.” This is part of the “Aldi principle” and also underscores the company’s goal of being the price leader in food retailing.

This passing on of the lower VAT is in the spirit of the Minister of Economy Peter Altmaier, who said that he was certain “that the companies pass on the VAT”. Altmaier also said that he wished that “many companies would go the extra mile”, as the “Lebensmittelzeitung” quotes him.

Value added tax or sales tax is a continuous item for manufacturers and retailers. It is added to the net prices and thus results in the final price for the consumers. VAT is only ever paid by end users. Merchants only collect and pay the tax to the state. If traders like Aldi did not pass on the lower VAT at lower prices, this would mean an increase in their net prices and thus in their margins.

The economy can stimulate a reduction in VAT in two ways. First, it can boost consumption through lower prices. On the other hand, it can – for example in the hospitality industry – stabilize troubled companies that keep their prices stable and thus improve their net income.

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