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Cost of living For Members

How Germany's plan to hike the VAT on restaurants and cafes will affect you

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Sarah Karacs - [email protected]
How Germany's plan to hike the VAT on restaurants and cafes will affect you
People sit outside cafes in Stuttgart city centre. Photo: picture alliance/dpa | Andreas Rosar

The German government has opted to raise the value-added tax on restaurants and cafes back up to 19 percent from the start of next year.

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Supporters of the move to hike VAT argue that it will help as a measure against increasing inflation tied to the energy crisis.

But opponents say the plan will force many local businesses to close their doors as consumers opt to save money and stay in.

What exactly does the German government have planned?

The move is part of the coalition's budget-saving measures which are due to come into effect from January 1st, 2024.

The temporary reduction of the VAT rate from 19 to seven percent on meals (excluding drinks) in restaurants and other catering establishments was originally introduced in response to the Covid-19 pandemic, during which many businesses struggled.

The VAT cut was extended until the end of 2023 against a background of increasing inflation due to the energy crisis.

Who will it affect?

The increase is likely to have a significant impact on the hospitality industry that's faced challenges in reaching pre-corona crisis sales. 

Inflation-adjusted sales from January to May 2023 are 11.4 percent below those in 2019, according to the Federal Statistical Office.

Restaurants will have to raise prices to offset the increased cost of VAT, which could lead to a decline in customer traffic.

Consumers will also be affected, with the VAT hike having a significant impact on the cost of dining out. Beloved local restaurants and cafes may not be able to withstand these new pressures and could be forced to close, which can be disheartening to witness.

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School canteens are also likely to be hit by the VAT hike, as they are classified as catering establishments. This means that they will have to raise their prices to offset the increased cost of VAT, which could put a strain on their budgets.

This could have a knock-on effect on the quality of food served in school canteens, with canteens forced to use lower-quality ingredients to save costs.

What are critics of the move saying?

The industry group DEHOGA has warned that the increase could lead to the closure of up to 10,000 restaurants and the loss of tens of thousands of jobs. 

The VAT rate on supermarkets and food delivery outlets will not go up and will remain at 7 percent. Opponents of the VAT hike argue that this distinction unfairly favors delivery platforms like Uber Eats.

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"The cost of running a dine-in place is a lot higher than a pure delivery kitchen, and yet the prices of the meals for customers are mostly similar," one Berliner who works closely with restaurateurs told The Local. 

Coins lie next to a coffee cup on a table in a cafe in Berlin.

Coins lie next to a coffee cup on a table in a cafe in Berlin. Photo: picture alliance / Sonja Marzoner/dpa | Sonja Marzoner

She has many friends who own restaurants in Berlin and is concerned for them.

"Berlin has a really rich culture and that has only recently started to blossom - so many places are new and have been hit heavily with covid and subsequent inflation," she said.

"It would be really sad to see more places go down. People work very hard with a lot of passion for really small profits in this sector. I'm sure we could think of other industries to tax.”

How much would an average meal increase by?

Assuming you are paying an average rate of €10 per meal, its cost is expected to increase by approximately €1.2. That’s a significant increase if you're watching your budget, and also having to worry about rising rent and energy costs.

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