Swiss government considers 0.4% VAT increase in 2026 to fund pensions rise
Following a national referendum vote to increase state pensions, the Federal Council government has proposed two funding plans for 2026 to meet the extra CHF 4.2 billion annual costs:
- Increase VAT from 8.1% to 8.5% and raise the pension levy on salaries by 0.5%; or
- Increase the pension levy on salaries by 0.8%.
The two alternatives now go to a public consultation before submission to the Parliament in Autumn this year.
Switzerland already raised its VAT rate on 1 January 2024 from 7.7% to 8.1% to fund pension liabilities gap. It has the lowest VAT in Europe of any major country. The EU average VAT rate is over 21%.
1st Jan 2024 VAT rise to fund pension reforms for ageing population
An ageing population, and funding shortage in the public pension system (OASI), has led to the Swiss to vote in September 2022 for a rise in VAT rates from January 2024 as follows:
- Standard rate from 7.7% to 8.1%;
- Reduced rate from 2.5% to 2.6%
- Hotel accommodation rate from 3.7% to 3.8%
The vote for the increase in Value Added Tax received 55.1% of the vote. The rise will only remain in place until 2030.
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Package of reforms triggers national referendum
Since the VAT rate change was linked to other measures to change the benefits package, and therefore a change to the Federal Constitution, a national referendum was required – hence today’s vote.
The extra revenue would be applied to cover shortages on the Swiss Old Age Insurance contribution which falls short of the ongoing payments. This is being exacerbated by the wave of Baby Boomer generation (born between 1946 and 1964) now retiring.
As part of the reforms, women will work longer – to 65 years instead of 64.
Read our Swiss VAT guide for more background on Switzerland’s Value Added Tax regime.
Second attempt to raise Swiss VAT to fund pensions
Back in 2017, the Swiss voted against a VAT rise to fund a pension reform package. The rate then was 8%, and the vote proposed 8.3%. So instead a planned cut to the current 7.7% went ahead on 1 January 2018.
