Switzerland’s Federal Council has finalised its proposal to temporarily increase the value-added tax rate to help finance a major expansion of the country’s defence capabilities, citing a deteriorating security situation in Europe. The plan, which requires approval from parliament and Swiss voters, would raise the standard VAT rate by 0.5 percentage points for 12 years starting no earlier than 2028.
Under the revised proposal, Switzerland’s standard VAT rate would rise from 8.1% to 8.6%, while the special rate applied to accommodation services would increase by 0.3 percentage points to 4.3%. The reduced VAT rate covering essentials such as food and medicine, currently at 2.6%, would remain unchanged.
The additional revenue generated is expected to total around CHF 24 billion over the 12-year period, and all of it would be directed entirely toward defence expenditures for the Swiss Armed Forces. The Federal Council has said the funds are needed to strengthen the country’s security and defence capability, given what it describes as a deteriorating security situation.
Read More: Switzerland Explores Defence Cooperation With Japan Amid Fighter Jet Speculation
A Scaled-Back Version Of The Original Plan
The current proposal represents a significant reduction from what the Federal Council first floated in January 2026.
The initial plan called for an 0.8-percentage-point VAT increase over 10 years, intended to raise approximately CHF 31 billion for the armed forces and other security-related federal offices.
That original proposal was submitted for public consultation in March 2026 despite considerable criticism, with the consultation period running until the end of May. Following the results of that process, the Federal Council decided in June 2026 to reduce the size of the surcharge, cutting the standard-rate increase from 0.8 to 0.5 percentage points and choosing not to touch the reduced rate for food and medicine at all. In exchange for softening the immediate impact, the government extended the duration of the surcharge from 10 to 12 years.
Swiss officials have linked the proposed tax increase directly to specific procurement priorities.
The funds are primarily intended to cover the extra costs associated with Patriot missile systems and the acquisition of US-made F-35 fighter jets, as well as the potential purchase of a second ground-to-air defense system.
The broader policy justification, as stated by the government, is to give the army and security-focused civilian federal offices the financial means to better protect the population and the country against the most likely threats, including hybrid activities and long-distance attacks. Some of the additional revenue would also flow into a newly created armaments fund, which would be permitted to borrow up to CHF 6 billion to smooth out spending peaks and speed up procurement, though any such borrowing would have to be repaid within the timeframe of the temporary tax increase in keeping with Switzerland’s constitutional debt-brake rules.
A VAT Increase In Switzerland Requires A Constitutional Amendment
Because a VAT increase in Switzerland requires a constitutional amendment, the plan cannot take effect without the approval of both houses of parliament and, ultimately, Swiss voters and the cantons in a nationwide referendum. That referendum is expected to take place in the summer of 2027.
If approved at every stage, the increase would come into force at the earliest on 1 January 2028. Separately, another VAT adjustment tied to pension reform is moving through parliament on its own track, having already received approval from the National Council in June 2026, meaning Swiss voters may ultimately be asked to weigh in on more than one VAT-related question tied to different parts of the federal budget.
For now, the defense-related VAT proposal remains just that: a proposal. It has cleared an important internal government hurdle by winning the Federal Council’s formal backing, but its fate rests with lawmakers first and the Swiss electorate afterward.
Zurich Unemployment Rate Rose To 2.9% In July 2026
