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Eating out just got more expensive: From January, VAT on food in restaurants will surge from 7% to 19%.
This dramatic increase in taxes has left the food service industry grappling with discomfort. Meals in daycare centers, schools, and nursing homes will also become costlier. Several federal states are attempting to halt this 12% tax hike. The Senate, in collaboration with the Bundestag, has urged a mediation committee to discuss the Growth Opportunities Act—intended to provide the economy with a 7 billion annual tax relief. Incidentally, this discussion now includes a debate on the rise in 'schnitzel tax' value (approximately 3.4 billion).
A new concept emerged this week, as representatives from the catering industry met with State Secretary of Finance Florian Toncar (44, FDP). They proposed a 10% flat-rate tax for all meals, aiming to counterbalance the VAT increase's impact.
The Ministry of Finance is now evaluating the consequences a 10% tax on everything would impose on the state's finances.
The idea of a 10% flat-rate tax on all meals, in light of the VAT rise on food in restaurants, holds several implications for the country's finances:
- Revenue Generation: The current 7% VAT rate applicable to restaurant meals is a pandemic-induced measure. However, a uniform 10% tax rate on all meals could result in increased tax revenues for the government.
- Consumer Impact:
- Increased meal prices may suppress consumer spending, affecting the demand for restaurant services.
- Restaurants might face challenges in passing the increased costs on to consumers, potentially leading to a loss of business to cheaper alternatives.
- Business Impact:
- Profit margins of restaurants could be reduced, impacting investment in the sector.
- A competitive disadvantage might unfold for restaurants, given increases to the cost of meals. This could lead to job losses in the hospitality industry if businesses cannot maintain profitability.
- Economic Impact:
- Decreased consumer spending on meals due to higher prices may have broader implications for other industries.
- The hospitality industry plays a crucial role in local economies and tourism. Higher meal prices could deter tourists and negatively impact surrounding businesses.
- Comparison with VAT Increase: The 12% VAT increase on certain types of food has already placed a heavy burden on middle and lower-middle classes. Implementing a 10% flat-rate tax could further intensify this financial strain.
In summary, a proposed 10% flat-rate tax on all meals in German restaurants would likely increase the government's revenue yet might have adverse effects on consumer spending, business profitability, and the broader economy. It could also exacerbate the financial pressure on middle and lower-middle classes, who have already been impacted by the recent VAT increase.
