The German government has decided to raise the value-added tax (VAT) for restaurants and cafes to 19% starting from the beginning of next year. Supporters of the VAT increase argue that it will help combat the growing inflation linked to the energy crisis.
However, opponents of this plan claim that many local businesses may be forced to close their doors as consumers opt to save money and stay home.
The Increase in VAT for Cafes and Restaurants in Germany: Government Plans Explained
This move is part of the coalition's measures to save budget funds, set to take effect from January 1, 2024.
The temporary reduction in the VAT rate from 19% to 7% for food (excluding beverages) in restaurants and other catering establishments was initially introduced in response to the COVID-19 pandemic when many businesses were facing difficulties.
The VAT reduction was extended until the end of 2023 amid the rising inflation caused by the energy crisis.
The Increase in VAT for Cafes and Restaurants in Germany: Those Affected
The increase in tariffs is likely to have a significant impact on the hospitality industry, which has struggled to reach pre-crisis sales levels.
According to the Federal Statistical Office, the sales volume from January to May 2023, accounting for inflation, is 11.4% lower than in 2019. Restaurants will be forced to raise prices to compensate for the increased cost of VAT, leading to a potential decline in customer traffic.
Consumers will also be affected as the rise in VAT impacts significantly the cost of dining in restaurants. Beloved local restaurants and cafes may not withstand the new pressure and will be forced to close, which is disheartening news for many people.
School cafeterias could also suffer from the increase in VAT, as they fall under the category of catering businesses. This means they have to raise prices to compensate for the increased VAT cost, potentially leading to budget cuts.
This could impact the quality of food in school cafeterias, as, for cost-saving purposes, they may be forced to use less quality ingredients.
What do critics say about this decision?
The industry group DEHOGA has warned that the rate increase could lead to the closure of up to 10,000 restaurants and the loss of tens of thousands of jobs.
The VAT rate for supermarkets and food delivery points will not increase and remains at 7%. Opponents of the VAT increse argue that such a distinction unfairly favors food delivery platforms like Uber Eats.
"The costs of running a catering establishment are much higher than for a clean kitchen for delivery, and the prices for dishes for customers are mostly the same", says one Berliner closely collaborating with restaurateurs.
She has many friends who own restaurants in Berlin, and she is concerned for them.
"Berlin has a really rich culture that has only recently started to flourish—many establishments are new and have suffered greatly from COVID-19 and subsequent inflation", she says.
"It would be very sad to see more and more places decline. In this sector, people work a lot and passionately for very little money. I'm sure we could come up with other industries that could be taxed".
How much does the average cost of one meal increase?
If we assume that you typically pay 10 euros for one dish, its cost will increase by approximately 1.2 euros. This is a significant increase, especially if you are budget-conscious and also have to worry about rising expenses for rent and electricity.
Related topics:
The temporary VAT rate reduction for food in restaurants, initially implemented during the COVID-19 pandemic, is set to end at the end of 2023.
Despite the increase in VAT for cafes and restaurants, the rate will remain at 7% for supermarkets and food delivery points, which some critics argue is an unfair distinction.
