End of tax relief: Landlords want to raise prices

Gastronomy - End of tax relief: Landlords want to raise prices

Will a schnitzel with fries at a highway service station cost 16.67 euros instead of 14.99 euros in the future? At least, that's the mathematical result if the VAT rate on food in restaurants rises from 7 percent back to the usual 19 percent at the turn of the year - and if restaurateurs were to charge their customers the full amount. Many restaurateurs and restaurant chains are still holding back on announcements. However, the industry association, which vehemently campaigned for a renewed extension of the temporary tax break introduced during the coronavirus crisis, leaves no doubt: prices for restaurant meals will rise.

"If the tax rises from 7 to 19 percent, we will have to increase prices," says Ingrid Hartges, Managing Director of the German Hotel and Restaurant Association (Dehoga). "There is no leeway for most businesses. Hardly anyone can afford to add money." In a survey conducted by her association at the beginning of December, 89 percent of respondents said they wanted to raise prices. Whether and to what extent the tax increase, which in purely mathematical terms amounts to a good 11.2%, will have an impact on prices will ultimately be decided by each pub owner themselves, Hartges also explains.

In order to ease the burden on the hospitality industry during the coronavirus pandemic, the tax rate for food in restaurants and cafés was also temporarily reduced from 19% to 7% - while the rate for drinks remained at 19%. The exemption was then extended several times due to the energy crisis, most recently until the end of 2023. The German government put the annual costs at 3.4 billion euros. Takeaway, supermarket and delivery food is generally taxed at seven percent.

Majority of landlords want to increase prices

The steakhouse chain Blockhouse announced that it would not be increasing its prices immediately, but only on January 13, and then only by seven percentage points. "We are only passing on the increase proportionately," said a spokeswoman. The pizza chain L'Osteria wants to increase prices in February and then stagger them regionally according to purchasing power. Prices will therefore not rise everywhere, according to a spokeswoman: "In the more price-sensitive regions, we have decided to increase prices only minimally or not at all, depending on the dish." None of the other chains contacted by Deutsche Presse-Agentur in mid-December provided any concrete information.

Many are planning fewer restaurant visits

The industry had long hoped to be allowed to keep the concession in the long term. However, following the budget ruling by the Federal Constitutional Court in November, the federal government made it clear that the planned expiry at the end of 2023 would remain in place.

This has gone down badly with guests. In a representative survey conducted by the opinion research institute YouGov on behalf of Deutsche Presse-Agentur, 69% of respondents rejected the tax increase. As a result, many want to go to restaurants less often in future or spend less there. 44 percent of respondents said they wanted to change their behavior with regard to restaurant visits. A good two thirds of them want to eat out less often, and a quarter even want to stop going to restaurants altogether.

Economist: Subsidies for higher earners

While the German Association of System Gastronomy speaks of a "worst-case scenario" that has now materialized, economists praise the return to the old tax rate. After the end of the pandemic, there is no longer any reason to favor the industry, says Oliver Holtemöller from the Leibniz Institute for Economic Research Halle. "It's not the job of politicians to ensure that more people go to restaurants." Friedrich Heinemann from the Leibniz Center for European Economic Research in Mannheim also sees the concession as a socio-political problem. This is because higher earners in particular benefit from the tax reduction, he says. "The wealthy eat out more often and therefore benefit disproportionately. This is counterproductive in terms of social policy."

Unlike the industry association, Heinemann does not believe that the tax will now have a full impact. After all, prices in the catering industry have already risen sharply in recent years and many cost drivers have since disappeared. This, the economist believes, should give the industry some breathing space to absorb the tax increase, at least "to some extent". "That's why I don't expect a full price jump now."

Prices have already risen sharply

According to figures from the Federal Statistical Office, prices for restaurant services rose by 20.3% between January 2021 and October 2023, despite the reduction in VAT in the meantime. However, according to Hartges from Dehoga, the price of food rose by 29.3 percent in the same period. Hartges is referring to one of several major cost factors in the industry.

"Thanks to the seven percent VAT, we have not yet been forced to pass on all additional costs to the guest one-to-one." That will now change. Fewer guests, less turnover and business closures are inevitable. The association fears that 12,000 businesses will go out of business.

At least for the farewell, there is one more exception for landlords: they can still charge the old tax rate for New Year's Eve, regardless of whether they served before or after midnight. "At least it's a kind of consolation," says Björn Cubrowski from the Coburg Chamber of Industry and Commerce. After that, however, the reduction comes to an end.