Boostingthe Value-Added Tax (VAT) for dining establishments in Germany is on the agenda, with a proposed hike to 19% starting January 2024. Advocates of this motion believe it'll combat inflation linked to the ongoing energy crisis. However, the opposition warns that local businesses could shut down, as customers choose to save their cash and dine at home.
This enterprise-saving measure, part of the coalition's austerity plans, impacts the struggling hospitality sector, already fighting to rebound towards its pre-pandemic sales levels. According to statistics from the Federal Statistical Office, the sales volume from January to May 2023 has dropped 11.4% compared to 2019, considering inflation. As a result, dining establishments will likely need to raise prices to offset the increased VAT expense, potentially leading to a dip in customer traffic.
Consumers – the recipients of the new tax hike – are not immune to this financial blow. The increased VAT burden on dining out will drive up meal costs, making beloved local eateries and cafés vulnerable to closure. School cafeterias are also at risk of being affected due to their classification as catering services, while their food prices will have to be adjusted to reflect the increased tax. This could lead to budget cuts, impacting the quality of the food served in school cafeterias by shifting towards less expensive ingredients.
Critics of this decision argue that more than 10,000 restaurants in Germany may face closure and tens of thousands of jobs will be lost as a result of the hike. In contrast, supermarkets and food delivery services will be excluded from the VAT increase and remain at the 7% rate. Opponents believe this unfairly favors food delivery platforms like Uber Eats, while many restaurateurs are left to grapple with the rising costs.
The average meal price increase could reach approximately 1.2 euros, given a typical 10-euro dish price point. For budget-conscious consumers dealing with escalating expenses, this increase could add a considerable financial burden.
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Germany is yet to decide on increasing the VAT rate for restaurants and cafes from 19% to 7%. Instead, a temporary reduction in VAT to 7% for restaurant and catering services was implemented in response to the pandemic crisis in July 2020 and extended until December 31, 2023. A reduction to 7% would likely fuel economic stimulus, promote consumer affordability, and create job opportunities, but also result in revenue loss, higher inflation, and administrative complexities for businesses and the government.
