Enhanced battle against tax evasion is planned by the Ministry of Finance
In a bid to strengthen financial control and combat tax evasion, German Federal Finance Minister Lars Klingbeil has proposed a comprehensive reform as part of the 2026 federal budget and fiscal plan. The draft law, titled "for the modernization and digitalization of the fight against black market work," outlines a strategy to boost state revenue by closing tax gaps and loopholes and cracking down on financial crime and tax fraud.
The reform is a significant part of a broader government strategy aimed at growth and fairness, investing in education, infrastructure, affordable housing, and social measures while pursuing fiscal consolidation with cost-cutting across ministries. Enhancing tax compliance through stricter action on tax fraud is intended as a significant source of revenue enhancement without raising tax rates.
The German federal cabinet adopted the 2026 budget draft on July 29, 2025, which includes measures to increase revenues via stronger enforcement against tax evasion and undeclared work alongside structural reforms to enhance economic competitiveness.
Klingbeil has made fighting tax evasion and financial crime a leading priority in this budget plan. The reform is expected to incur additional expenses of around 465 million euros in the first four years after the law comes into force, with the majority of the additional revenue in 2029, 538.7 million euros, going to social insurance. The states are expected to benefit from 188.2 million euros, while the additional revenue for the federal government in 2029 is expected to be 131.5 million euros.
The reform includes strengthening financial control of black market work and expanding the catalog of sectors at risk. The catalog expansion includes the hairdressing and cosmetics industry, a new development not mentioned in earlier facts. This expansion is intended to improve the inspection situation for the Financial Control of Black Market Work (FKS).
The improved FKS is expected to lead to higher detection rates and more successful enforcement procedures. However, the draft does not provide specific details on the expected increase in detection rates or successful enforcement procedures. The draft states that the improved FKS will lead to optimal resource use in inspections.
The reform complements Germany’s international commitments on tax matters, including support for the global minimum corporate tax and collaboration with EU and international partners to enforce tax laws. This places Germany in a stronger position to tackle cross-border tax avoidance as part of the broader fight against tax fraud.
Despite political pushback from opposition parties insisting no tax increases are planned, the focus is on fiscal restraint, enhanced efficiency, and targeted measures to ensure fairness by cracking down on illegal activities affecting the tax base. The federal government expects additional revenue totaling 280.5 million euros for the federal budget from 2026 to 2029 due to the reform.
The information was reported by Handelsblatt, which has seen the draft. The Federal Ministry of Finance declined to comment on the figures due to the ongoing interdepartmental consultation. The ministry plans to adapt the catalog of sectors particularly at risk of black market work and illegal employment.
In summary, Klingbeil’s proposed reform within the 2026 budget focuses on increasing state revenue by fighting tax evasion and black market work through improved enforcement and closing loopholes. This strategy supports fiscal consolidation goals without raising taxes, with the exact financial impacts embedded within the broader government revenue enhancement efforts aimed at fairness, economic growth, and public investment.
The proposed reform in the 2026 budget, led by German Federal Finance Minister Lars Klingbeil, targets business sectors to boost state revenue by cracking down on financial crimes and tax evasion, with a specific focus on sectors such as the hairdressing and cosmetics industry. The reform aims to increase detection rates and successful enforcement procedures, leading to an expected additional revenue of 280.5 million euros for the federal budget from 2026 to 2029.
