Why is the reason of increasing VAT in Switzerland?
Switzerland is a prosperous and economically stable country, widely regarded as one of the most desirable places to live and do business in the world. However, in recent years, the Swiss government has implemented a series of tax hikes, including an increase in the value-added tax (VAT) rate. This has caused concern among businesses and consumers alike, who are wondering why the government has chosen to raise taxes and how it will impact the economy.
There are several reasons why the Swiss government has decided to increase the VAT rate. These include:
It helps the economy of the country
Switzerland is known for its low taxation rate, and that’s a big part of why it’s so attractive to businesses. The country has many business benefits, including a flexible government that understands business needs and an easy taxation system.
Switzerland imposes a value-added tax (VAT) on domestic goods and services supplied by Swiss entities or foreign companies with a taxable turnover in Switzerland. The VAT rates vary depending on the type of goods and services provided and the country of origin of the products or services.
The government seeks to increase the VAT rates to help pay for pensions. The country faces a shortage of funds to cover current pension payments. This is due to the ageing population and the Baby Boom generation retiring.
It helps the customers
Switzerland is not a member of the European Union, so it sets its VAT rates. This means that suppliers of goods or services registered for VAT in Switzerland must charge the appropriate rate.
In addition, some industries are exempt from Swiss VAT, including insurance, financial services, education and health.
However, foreign companies that perform domestic supply of goods and services in Switzerland, with a taxable turnover above CHF 100,000 worldwide, must register for VAT in Switzerland.
To do so, they must appoint a tax representative who takes responsibility for submitting the VAT returns and paying taxes.
They must also reclaim the VAT paid on business costs to the Swiss authorities. This is done by reporting relevant data quarterly or semi-annually if the net tax rate is applied.
It helps the companies
In Switzerland, companies that supply goods and services to private individuals must register for VAT. The registration process involves filing a VAT application and is free of charge.
The tax is calculated on the value of all taxable sales. The credit-invoice method is the most common, but the subtraction method used in Japan also applies.
A company liable for VAT must prepare turnover and input tax reconciliation annually to show that internally recognized turnover and input taxes match its tax returns. It must also submit a correction based on this annual VAT reconciliation within 240 days of the end of the calendar year.
As a matter of principle, proceeds from the sale of all goods and services in Switzerland are subject to the standard rate of 7.7% (will increase to 8.1% as of 1 January 2024), while goods for basic needs are subject to a reduced rate of 2.5%. Furthermore, services in connection with the provision of lodging are also subject to a special rate of 3.7% (will increase to 3.8% as of 1 January 2024). Online retailers who sell products in Switzerland can benefit from these rates.
It helps the government
The Swiss government wants to increase VAT to fund a pension reform package. This is due to a shortage of money in the Swiss Old Age and Survivors’ Insurance (AHV) system.
Switzerland is not part of the European Union and sets its VAT rates. These are applied to goods and services sold or provided in the country.
Exemptions are generally limited to public services or activities that serve a social interest, like education, health care, postal services, or charities. Other services generally exempted from VAT include financial and insurance products and services.
As with all taxes, compliance costs can significantly burden small and medium-sized enterprises. This is why most OECD countries have exemption thresholds below which businesses can be free from the requirement to collect and pay VAT.
Conclusion
Switzerland is experiencing an aging population, with a growing number of retirees who are no longer contributing to the workforce. This has put pressure on the country’s social security system, which is funded by taxes. In order to maintain the current level of benefits, the government needs to increase revenue, and one way to do this is by raising taxes.