Background

Many businesses continue to face high energy, labor, and financing costs, as well as an internationally high tax and levy burden. In a phase of weak growth, a more comprehensive relief for the entrepreneurial middle class would have been necessary. In addition, the labour factor is excessively burdened in Germany compared to international standards: The difference between total labour costs for employers and the actual net income for employees is significantly above the OECD average at more than 49 percent of labor costs for single average earners, compared to around 35 percent. Against this backdrop, the German Ministry of Finance presented the draft for an Income Tax Reform Act 2027 on August 18, 2026.

This draft includes, among other things, raising the basic tax-free allowance, adjusting the tariff benchmarks, and changes to Sunday and holiday bonuses as well as the employee lump sum amount. At the same time, burdensome measures for counter-financing are planned, including an increase in the flat tax rate for mini-jobs from 2 to 5 percent, lowering the income thresholds for the previous "wealth tax" of 45 percent to 250,000 euros, introducing a marginal tax rate of 47 percent above 280,000 euros, and reducing the so-called craftsman bonus.

The DIHK, together with other top associations of the commercial economy, commented on the draft within the set deadline of just three working days. Among other things, they demand a complete inflation adjustment of the tariff benchmarks and foregoing the tightened "wealth tax."

Business Demands

In the joint statement, the DIHK primarily makes the following suggestions for improvement:

Genuine Tariff Reform: The income tax tariff should be structurally reformed by stretching the progression zone and allowing the top tax rate to apply only at significantly higher incomes.

Complete Inflation Adjustment: All tariff benchmarks should be adjusted annually and systematically to price developments – across all income levels.

Rethink Top Tax Rates for Partnerships: The advancement of the 45-percent rate and the introduction of a new 47-percent rate should be waived to maintain investment incentives.

Maintain Mini-Job Flat Tax Rate: The previous rate of 2 percent should not be increased for counter-financing other reliefs.

Eliminate Solidarity Surcharge: The solidarity surcharge effectively acts as an additional business tax. Its complete abolition is necessary for Germany's competitiveness as a business location.

Improve Options Model and Thesaurisation Benefits: Partnerships need improved options for corporate tax preference and tax benefits for retained profits by 2027 as promised in the coalition agreement.

Keep Craftsman Bonus: The tax bonus for craftsman services should fundamentally remain in place.

Equalise Night Work Supplements: The basic wage increase for tax-free supplements should also apply to night work and be reflected in social insurance law – regardless of collective bargaining agreements.

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