Key takeaways
What it is about. The Federal Council is sticking to a temporary VAT increase to finance defense expenditure, but after the consultation has lowered the surcharge on the standard rate from 0.8 to 0.5 percentage points (special accommodation rate +0.3 percentage points; the reduced rate for food and medicines remains unchanged). The levy is now limited to 12 instead of 10 years.
Who is affected. In principle all taxable businesses accounting at the standard or special rate – through higher output and acquisition tax, master data and POS/ERP systems, price labeling, and contracts running beyond the effective date. Supplies at the reduced rate are not affected.
What to watch. Nothing binding for now – the proposal is only at the start of the legislative process and requires a popular vote. The rate increase is not expected to enter into force before 2028.
On 24 June 2026, the Federal Council decided to increase VAT temporarily to finance defense expenditure – though less sharply than originally planned. After a critical consultation, it is reducing the surcharge on the standard rate from 0.8 to 0.5 percentage points.
WHAT THE FEDERAL COUNCIL DECIDED
The standard rate is to rise temporarily by 0.5 percentage points (instead of 0.8) and the special rate for accommodation by 0.3 percentage points. An increase of the reduced rate – for example for food and medicines – is waived, which relieves lower-income households in particular. The additional revenue of around CHF 24 billion is earmarked entirely for defense expenditure and is now limited to 12 instead of 10 years.
The increase in favor of the 13th OASI pension (AHV) was already adopted by Parliament on 19 June 2026: the standard rate would rise by 0.4 percentage points from 2028 and the special accommodation rate by 0.2 percentage points – this, however, without a time limit. That proposal, too, is still subject to the mandatory popular vote (expected on 29 November 2026). The defense proposal discussed here would add 0.5 (standard rate) and 0.3 percentage points (special rate). If both are approved at the ballot box, the standard rate would rise from today’s 8.1% to 9.0% and the special accommodation rate from 3.8% to 4.3% – each a record high. The reduced rate of 2.6% for everyday consumer goods would remain unchanged in both cases.
In addition, the Federal Council is sticking to the debt-financed defense fund, which was largely uncontested in the consultation. The increase of the army budget to 1% of GDP adopted by Parliament, as well as the additional needs of civilian federal agencies, will now – thanks to the improved financial situation – be financed through the federal budget rather than through VAT.
TIME HORIZON: WHEN WOULD THE INCREASE APPLY?
The Federal Council intends to submit the dispatch to Parliament at its meeting of 12 August 2026; parliamentary deliberation will begin thereafter. Because adjusting the VAT rates requires an amendment of the Federal Constitution, a mandatory popular vote (people and cantons) is also necessary. Defence Minister Pfister indicated 2027 for this vote.
A binding entry into force is therefore not yet fixed. Realistically – subject to approval by Parliament and the electorate – it would not take effect before 2028; the levy would be limited to 12 years. In the short term, nothing changes: businesses have lead time but should keep an eye on the proposal.
WHAT THIS MEANS FOR BUSINESSES
A rate increase affects all supplies taxable at the standard or special rate. The following are particularly relevant in practice:
- Adjustment of ERP, invoicing and POS systems as well as the tax-rate master data
- Price labeling and quotations with effect beyond the cut-off date
- Allocation of supplies spanning the cut-off date and of advance payments – what matters is the time of supply, not the time of invoicing or payment
- Long-term contracts: a clear provision on who bears a later tax increase (VAT clause)
Supplies at the reduced rate (including food and medicines) are not affected. As the increase is temporary, a return to the lower rates would need to be planned for the end of the period of validity.
CONCLUSION
The increase will come – if at all – more moderately and later than initially feared: 0.5 instead of 0.8 percentage points, at the earliest from 2028 and only with the approval of the people and cantons. As soon as the dispatch is available and the date of the vote is set, an early review of the affected systems and contracts is worthwhile – we are happy to support you.
