GBP Monitor July: Gap between Companies’ Expectations and the Governments’ Tax Policy

Last week, the federal government announced a legislative package that is expected to provide six billion euros in annual relief to companies. The tax rates on company profits are to remain the same. The July report of the German Business Panel (GBP) at the University of Mannheim shows that the government’s tax policy and the companies’ expectations do not match.

The tax position of companies has remained stable during the crises of the last three years. According to the new reforms of the German finance minister, this is not about to change. But nevertheless, the governments’ stabilizing tax policy leads to insecurities at the companies, because the expectations companies have of the governments’ policy differ greatly, as the July Report of the German Business Panel shows. At the beginning of the coronavirus pandemic, companies expected a drop in tax rates in the short term, but they expected a significant increase in tax rates in the medium term. A short-term increase in capital yield tax (by 0.4 percent) and social security contribution (by 0.3 percent) were also expected.

“Insecurity about possible tax adjustments may have negative consequences on business actions and may cause, for example, the postponement of investments,” explains Professor Davud Rostam-Afschar, who conducted the study. “It is essential that the long-term tax policy strategy is communicated in an unambiguous way so that companies reach their goals,” says Rostam-Afschar.

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