At the end of 2023, VAT in the catering industry will rise again to 19 percent. The industry warns of closures and rising prices. However, there is no justification for ZEW to provide permanent subsidies.
Researchers at the Mannheim economic research institute ZEW believe that a return to the VAT rate from seven to 19 percent in the catering sector makes economic sense – and is socially fair. In the event of a permanent reduction in VAT, economic researchers warn of significant tax losses amounting to billions.
“With the end of the pandemic, the original crisis-related justification for the seven percent tax on food in restaurants no longer applies,” argued ZEW expert Friedrich Heinemann.
Back to the old one VAT rate?
Food taken away, in the supermarket or delivered is taxed at seven percent. In order to relieve the burden on the catering industry during the Corona crisis, the tax refund for restaurant meals was also reduced from 19 to seven percent. The regulation has been extended several times due to the energy crisis, most recently until the end of this year.
However, industry representatives are protesting against the change expiring at the end of 2023. “If there was a tax increase, another 12,000 companies would go out of business,” warned the managing director of the German Hotel and Restaurant Association (DEHOGA). Price increases of an average of 18.2 percent, falling sales and fewer jobs are also to be feared.
Higher taxes elsewhere
According to ZEW calculations, the reduced rate currently leads to annual tax losses of a good three billion euros. These costs would continually increase with the industry’s nominal sales growth (including price increases). According to the ZEW analysis, total costs of around 38 billion euros would be expected for the coming decade, “which would have to be counter-financed by higher taxes elsewhere or spending cuts.”
An extension of the reduced tax rate is currently being discussed in the coalition. A proposal from the CDU/CSU parliamentary group to permanently tax the consumption of food in restaurants at the reduced tax rate recently failed to find a majority in the Bundestag.
Higher prices in restaurants soon?
According to ZEW, the reduced tax rate tends to favor wealthy and childless households because they would, on average, spend more on visits to restaurants. “The arguments for a reduced tax rate may, however, be valid for catering in schools and kindergartens,” says the analysis. This could be supported not only by more targeted benefits for poorer households, but also by the contribution to the compatibility of work and parenthood.
The ZEW believes that the fear that restaurants will increase prices to the full extent of the tax rate difference if they return to the 19 percent rate is not plausible. “After all, the industry has pushed through significant price increases despite the tax reduction, and the prices for electricity and gas are falling again,” argued Heinemann. “The post-pandemic period means that the catering industry, like other sectors, will undergo further structural change, which does not provide any justification for permanent subsidies,” added ZEW expert Katharina Nicolay.