The Swiss Federal Council has presented an initiative to apply a temporary half-percentage point increase in the general VAT rate, which would thus rise to 8.6%, with the aim of allocating all additional revenue to strengthening the defense budget.
"The additional revenue will be entirely allocated to defense spending," the Swiss Executive stated, specifying that the remaining items linked to security will be covered by the ordinary federal budget.
Taking into account the results of the public consultation and with the intention of containing the impact on taxpayers, the Government has decided to set the increase in the general VAT rate at 0.5 percentage points, compared to the 0.8 initially proposed. At the same time, a 0.3 point increase in the special rate is foreseen, while the reduced rate remains unchanged, so that lower-income households will feel less of the tax burden.
The VAT increase will be introduced gradually over 12 years, instead of the 10 years initially contemplated. The extra resources will serve to cover the higher cost of military equipment and the modernization of the capabilities of the Swiss armed forces, in order to face the most probable threats, such as hybrid operations and remote attacks.
These funds will also facilitate the possible purchase of a second long-range anti-aircraft defense system and will cover the added expenses linked to the acquisition of the Patriot system.
Currently, the general VAT rate in Switzerland is 8.1%, while the reduced rate, which applies mainly to food products and medicines, stands at 2.6%. In turn, there is a special rate of 3.8% that taxes accommodation services, such as hotels and holiday rentals.
"It is clear that, given the deteriorating security environment, Switzerland must strengthen its security and defense capabilities, and that additional financial resources are needed for this," the Federal Council emphasized.