Tax increase in the catering industry: How does the return to the full VAT rate affect prices?

Tax increase in the catering industry: How does the return to the full VAT rate affect prices?

According to a report by www.badische-zeitung.de, the VAT rate on food in restaurants will increase from 7 percent to the regular rate of 19 percent from January 1, 2023. This raises the question for many restaurateurs as to whether and to what extent they will pass on the price increase to their customers. Ingrid Hartges, the general manager of the German Hotel and Restaurant Association (Dehoga), emphasizes that most businesses will be forced to raise prices because they have no scope for additional costs.

The industry has received financial relief due to the temporary reduction in the VAT rate during the Corona crisis. However, this meant that the costs for the federal government were 3.4 billion euros annually. With the exemption expiring at the end of 2023, restaurant food prices are expected to increase, which could lead to changes in guest behavior.

The steakhouse chain Blockhouse plans to implement the price increase on January 13th and only pass on seven percentage points. The pizza chain L'Osteria is planning a staggered price increase depending on regional purchasing behavior. The polling institute Yougov reports that 69 percent of respondents reject the tax increase and many of them say they want to eat out less often.

The new tax rate is also welcomed by economists such as Oliver Holtemöller and Friedrich Heinemann, who assume that it is not the job of politicians to favor the catering industry. They also see the tax relief as counterproductive in terms of social policy. According to the Federal Statistical Office, prices for restaurant services rose by 20.3 percent despite the temporary reduction, while food prices rose by 29.3 percent.

This return to the normal VAT rate of 19 percent is expected to have an impact on the market and the financial sector. It is expected that the restaurant industry will increase its prices to compensate for the additional tax burdens. This could lead to a decline in restaurant visits and changes in consumer purchasing behavior. Overall, it remains to be seen how the restaurant industry will react to this tax change and how market conditions will change as a result.