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Germany, known for its sophisticated tax system, is considering the implementation of an automated tax calculation system. However, it's important to note that no specific information about such a proposal has been confirmed yet.
In the current system, Germany employs a progressive income tax structure, where tax rates increase with income levels. Employers typically deduct income tax from employees' wages, but starting in 2025, certain deductions must be claimed through the annual tax return rather than through payroll. The European Union's automatic exchange of tax information protocols could indirectly support more efficient tax processing by facilitating the sharing of financial data.
If an automated tax calculation system were to be proposed, it could bring several benefits. Efficiency and accuracy would be ensured, reducing the load on tax authorities and expediting tax compliance for individuals and businesses. The process of filing tax returns could be simplified, minimising errors, particularly beneficial for expats or those with complex tax situations. Cost savings could result from reducing the administrative burden on both taxpayers and tax authorities. Enhanced transparency and compliance might also be achieved, potentially reducing the risk of tax evasion.
The German Tax Union is advocating for employees to no longer have to file a traditional tax return, with the tax office automatically preparing the return instead. This proposal includes potential relief for pensioners, with discussions about tax being deducted directly at the source, such as by the pension office. If the proposal is implemented, pensioners may no longer need to submit a tax return.
For those still required to file a tax return, the 2024 return must be submitted by 31st July 2025. Those who seek help from a tax advisor have until 30th April 2026 to submit their 2024 tax return.
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It's worth noting that Austria is already using a similar system where the tax office automatically prepares tax returns. The data points used in the proposed system, including income, health insurance, and pension contributions, are already in the hands of the tax authorities.
While the implementation of an automated tax calculation system in Germany remains speculative, the potential benefits highlight the potential advantages of incorporating advanced technology into tax administration systems.
Advocates of an automated tax calculation system propose that it could streamline tax processes for individuals and businesses, ensuring efficiency and accuracy, and reducing the load on tax authorities. This system could potentially benefit pensioners, as they may no longer need to file a traditional tax return, with taxes being deducted directly at the source instead.
The potential benefits of this proposed system include simplifying the process of filing tax returns, minimizing errors, particularly beneficial for expats or those with complex tax situations. Additionally, cost savings could result from reducing the administrative burden on both taxpayers and tax authorities, and enhanced transparency and compliance might also be achieved, potentially reducing the risk of tax evasion.
