Swiss government sends army VAT increase plan to Parliament

Switzerland’s Federal Council is pressing ahead with a plan to raise value-added tax by 0.5 percentage points for 12 years to fund army equipment, SRF reports. The measure would generate 24 billion Swiss francs, all of which would be used for military procurement.

The Federal Council approved its dispatch on the temporary tax increase after examining alternative funding options in response to criticism during the consultation process. It reduced the proposed increase from 0.8 percentage points and extended the measure from 10 to 12 years.

The special VAT rate for hotels would rise by 0.3 percentage points, while the reduced rate of 2.6 percent for everyday goods would remain unchanged.

Of the additional 24 billion francs, 18 billion would fund expanded capabilities against hybrid activities and attacks from a distance, as well as rising arms procurement costs. A further 6 billion would be used to acquire a second ground-based air defence system.

The previously approved increase in the army budget to 1 percent of gross domestic product by 2032 would be financed through the federal budget rather than VAT. The government also plans to cover an additional 3 billion francs for civilian federal agencies with security responsibilities by prioritising spending.

The proposal is expected to face opposition in Parliament. The Social Democratic Party, FDP, Greens and Green Liberal Party have announced their opposition, warning that it could place an excessive burden on businesses and the public. The Centre is currently the only party to have backed the plan, while the Swiss People’s Party has not yet taken a position.

If Parliament approves the proposal, it would also be put to a vote, earliest in June 2027. The VAT increase is linked to a debt-capable military fund that would allow advance payments, smooth out peaks in spending and accelerate procurement. The fund would be established after the vote and could take on debt even though the higher VAT would not generate additional revenue until 2028.