75 the slightly lower than expected increase of VAT could partly be explained by an increase of the relative size of the shadow economy. 128 2.4 Main excises: mineral oil and tobacco taxes There are a number of excises, but two of them – the mineral oil tax and the tobacco tax – are the most important in revenue terms. In both taxes a federally unified legislation applies. 2.4.1 Current regulation (2007) The mineral oil tax is levied on motor fuel, furnace fuel and natural gas. The tax rates are calculated based on volume sold. Since January 1st, 2003 the rate has equaled €0.6698/l for unleaded fuel, €0,721/l for leaded fuel, and €0.4857/kg for diesel. Heating oil and natural gas for heating purposes are taxed at far lower rates with €0.06135/l for light heating oil, €0.025/kg for heavy heating oil, and €0.550/kwh for natural gas. The tax on tobacco consists of a price-related and a volume-related element with rates depending on the specific product (cigarettes, cigars or tobacco). The current rate for cigarettes is €0.0827 per piece (since September 1st, 2005) and 25.29% of the final sale price, while the rate for cigars and tobacco is lower.129 2.4.2 Mineral oil and tobacco taxes – rates, reforms and revenue development Mineral oil taxes were introduced in 1930. In 1939 diesel was included and since 1960 heating oil as well. Throughout the period analyzed in our data-set tax rates increased (see Figure 34), and the frequency of increases accelerated after reunification in 1990. 128 Schneider (2005) estimates, that the shadow economy in Germany increased from 5.75% of GDP in 1975 to 16.64% of GDP in 2005. 129 The current rate is €0.013 per cigar plus 1% of the final price and for tobacco €19.15 per kg plus 17.02% of the final sale price. 76 TAX REFORMS MINERAL OIL AND TOBACCO TAX 1950/2007 0 10 20 30 40 50 60 70 80 19 50 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 LEADED FUEL UNLEADED FUEL DIESEL 19 50 19 52 19 54 19 56 19 58 19 60 19 62 19 64 19 66 19 68 19 70 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 De ce mb er 1s t, 0 0 No ve mb er 1s t, 0 1 Ja nu ary 1s t, 0 2 Ja nu ary 1s t, 0 3 Ma rch 1s t, De ce mb er 1s t, 0 4 Se pt em be r 1 st, 05 Ju ne 8t h, 53 Ma rch 1s t, 6 7 (in cr 1e as e) Ju ly 1s t, 7 2 Ja nu ary 1s t, 7 7 Ja nu ary 1s t, 8 0 Ju ne 1s t, 8 2 Ma y 1 st , 8 9 Ma rch 1s t, 9 2 EURO CENT/L TOBBACCO TAX INCREASES MINERAL OIL TAX RATES Data source: Tax laws/Association of the German Mineral Oil Industry.Reforms by date of implementation. Figure 34: Tax reforms in mineral oil and tobacco taxes Tax rates of tobacco taxes were increased in 1967 and 13 times thereafter with a concentration of increases after 2000. Our data-set shows that mineral oil and tobacco tax reforms were strictly dominated by tax increases (see Figure 35). In mineral oil taxes, the most important increases took place in 1991/1992. Generally increases in between 1989 and 1999 were especially strong. With respect to tobacco taxes, the most important increase took place in 1972. Compared to the extent of reforms in the 80s, the fiscal effects of tax increases played no major role in between 1983 and 2000. 77 MINERAL OIL TOBACCO TAX REFORMS -0,05% 0,00% 0,05% 0,10% 0,15% 0,20% 0,25% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 INCR RED -0,10% 0,00% 0,10% 0,20% 0,30% 0,40% 0,50% 0,60% 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 1 3 INCR RED MINERAL OIL TAX TOBACCO TAX Rate increase 1967 Rate increase July 1st 1972 Rate increase March 1st 1967 Rate increase January 1st 1977 Rate increase June 1st 1982 Rate increase May 1st 1989 Rate increase March 1st 1992 Rate increase January 1st 2002 Rate increase December 1st 2004 Rate increase 1973 Rate increase 1981 Rate increase 1989 Rate increase 1991/92 Rate increase 1994 Rate increase 1998/99/00 Fiscal Effects/ GDP Fiscal Effects/ GDP Own calculations based on: Federal Ministry of Finance (2004)/Tax laws.Reforms by date of implementation. Figure 35: Fiscal effects of tax reforms in mineral oil and tobacco taxes Cumulated effects of mineral oil and tobacco tax reforms (see the lower part of Figure 36) showed an upward trend throughout the period analyzed which accelerated after 1990. Mineral oil tax reforms were in absolute extent far more important than tobacco tax reforms. Together tobacco and mineral oil taxes accounted for 12% of all tax revenues in 1950 as well as in 2004. However, the developments of the two excises diverged strongly. Despite the upward trend in cumulated reforms (and in the tax burden) the importance of tobacco taxes, which alone accounted for 12% of tax revenues in 1950, strongly decreased within the period analyzed. Volume and price effects unrelated to taxation were responsible for this development. Nonetheless, some tax increases – like especially the 1967 tax increase – were directly reflected in revenues, while most others were less visible in revenue developments. 78 MINERAL OIL AND TOBACCO TAXES - GERMANY 1950-2004 Revenues/Total Tax Revenues 0% 2% 4% 6% 8% 10% 12% 14% 16% 19 52 19 55 19 58 19 61 19 64 19 67 19 70 19 73 19 76 19 79 19 82 19 85 19 88 19 91 19 94 19 97 20 00 20 03 REVENUES FROM MAIN EXCISES MINERAL OIL TAX REVENUES TOBACCO TAX REVENUES 0% 5% 10% 15% 65 68 71 74 77 80 83 86 89 92 95 98 1 4 Cumulated fiscal effects of tax reforms/Total tax revenues Mineral oil Tax Tobacco tax Own calculations based on: Federal Ministry of Finance (2004)/Federal Statistical Office(2007).Reforms by date of implementation. Figure 36: Linking cumulated reform effects and revenue development in main excises The share of mineral oil tax revenues over all tax revenues increased strongly till the late 1960s, decreased then till reunification in 1990 and increased strongly thereafter. Additional data on the volume of mineral oil consumption indicate that the strong increase in revenues from mineral oil tax revenues until the early 1970s was mainly due to increases in volume sold. Until the early 1990s the reduction in revenues relatively to GDP resulted from a slight downward trend in mineral oil consumption, while the increases after 1990 resulted mainly from strongly increasing tax rates (partly to finance German reunification).130 130 Data from the federal statistical office shows that the volume of mineral oil consumption increased in Western Germany until the early seventies and reached its peak in 1974. Afterwards, the volume of consumption went down till the early eighties and was then relatively stable until recently. 79 2.5 Property taxes Property taxes in Germany consist of the real estate, the real estate acquisition, and the inheritance tax. They accounted for only 4% of total tax revenues in 2006 and showed only a very limited reform activity. Therefore, we review the regulation and reforms of these taxes only very shortly. 2.5.1 Property taxes: current regulation (2007) 2.5.1.1 The local real estate tax – current regulation In revenue terms, the real estate tax is the most important tax on property in Germany. Real estate tax is levied for each calendar year on real estate used for farming and forestry in form of the real estate tax A and for all other real estate in form of real estate tax B.131 The tax base is the value of real estate which is assessed on a special date by so called “standard” or “ratable” values (“Einheitswert”). As the standard values for land and buildings date back to 1964 (in case of the Eastern German states even to 1935) and have not been updated in recent years, buildings and land are widely believed to be considerably undervalued.132 A federal tax law sets basic tax rates on which the local authorities can apply their own multipliers.133 2.5.1.2 The real estate transfer tax – current regulation The acquisition of real property in Germany is subject to real estate transfer tax which is imposed on the agreed consideration (usually the purchase price) at a rate of 3.5%. In revenue terms the real estate acquisition tax is the second most important property tax in Germany. 131 Based on the real estate tax law from August 7th, 1973. See BGBl I (1973), pp. 965 ff. and subsequent changes. 132 The standard values are estimated to equal regularly about 20% to 50% of the market value of real estate. 133 Basic tax rates for farming and forestry (real estate tax A) are 6.0‰. Basic rates of the real estate tax B vary by kind of property and equal in between 2.6 ‰ and 3.5‰ in Western Germany and in between 5‰ and 10‰ in Eastern Germany (based on the lower standard values). In 2002 the weighted average of municipal multipliers for the real estate tax A equaled 289% in the Western German states (255% in the Eastern German states) and 370% for the real estate tax B (288% in Eastern Germany). For land without any buildings (which is not used for farming and forestry) this led in 2002 in Western Germany to a nominal average tax rate of 1.295%. However the effective tax rate is often lower as the real estate tax is deductible as a business expense from taxable business income.