Proposed 19% to 7% VAT cut on petrol and diesel dropped; opts for €0.14 per litre energy tax reduction
Germany has rejected proposals to temporarily cut VAT on petrol and diesel from 19% to 7%, instead agreeing a €2.5 billion fuel tax relief package based on a reduction in energy tax.
The German federal government and states agreed on 18 September 2026 to cut energy tax on petrol and diesel by €0.14 per litre. The temporary reduction is expected to take effect from 1 October and run until 31 December 2026.
See more in our German VAT guide.
19% to 7% VAT proposal dropped
Earlier in the week, Economy Minister Katherina Reiche had proposed temporarily reducing VAT on petrol and diesel from the standard 19% rate to Germany’s 7% reduced rate. The proposal was intended to provide immediate relief from sharply rising pump prices.
The government has instead opted for an energy tax reduction. This has an additional VAT effect because German VAT is calculated on the fuel price including energy tax.
A €0.14 reduction in energy tax therefore also reduces the associated VAT by approximately €0.027 per litre. The government puts the combined tax reduction at around €0.17 per litre.
For VAT-registered businesses entitled to full input VAT recovery, reducing the underlying energy tax also provides a more direct benefit than simply lowering the VAT rate, since recoverable VAT is not ultimately a cost to the business.
€2.5 billion temporary relief
The overall package is expected to provide approximately €2.5 billion of relief to consumers and businesses. The federal states will contribute €1.25 billion through an adjustment to their share of VAT revenues.
This will be Germany’s second temporary energy tax reduction in 2026. A similar measure operated during May and June, when energy tax was reduced by €0.1404 per litre, producing a total reduction of up to €0.17 once the VAT effect was included.
The government is also considering a temporary cap on retail fuel prices from 2027, based on models used in Luxembourg and Belgium. Discussions with the mineral oil industry are expected ahead of a possible introduction by 1 January 2027. (Bundesregierung)
