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Germany’s VAT Hike on Restaurants: Impact, Critics, and Consumer Concerns

Germany’s VAT Hike on Restaurants: Impact, Critics, and Consumer Concerns

The German government’s decision to reinstate the value-added tax (VAT) on restaurants and cafes to 19 percent from January 1st, 2024, has sparked a heated debate. This move, part of the coalition’s budget-saving measures, aims to address inflation linked to the ongoing energy crisis. In this article we will explore about Germany’s VAT Hike on Restaurants: Impact, Critics, and Consumer Concerns.

Details of the VAT Hike

The temporary reduction of the VAT rate from 19 to seven percent on meals (excluding drinks) was initially implemented in response to the Covid-19 pandemic. Extended until the end of 2023 due to the energy crisis, the VAT hike is part of the government’s broader strategy to stabilize the economy.

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Impact on the Hospitality Industry

With inflation-adjusted sales plummeting by 11.4 percent from January to May 2023 compared to 2019, the hospitality industry faces challenges in regaining pre-crisis sales. Restaurants are compelled to increase prices to counter the elevated VAT costs, potentially leading to a decline in customer traffic.

Affected Parties

The VAT hike will not only affect consumers, witnessing an increase in the cost of dining out, but also school canteens classified as catering establishments. As a result, these institutions may need to raise prices, impacting their budgets and potentially compromising the quality of the food served.

Critics’ Perspective

The industry group DEHOGA warns of severe consequences, predicting the closure of up to 10,000 restaurants and the loss of tens of thousands of jobs. Critics argue that the VAT rate on supermarkets and food delivery outlets remaining at 7 percent is seen as unfair. They assert that this distinction unfairly favors delivery platforms, potentially exacerbating the challenges faced by dine-in establishments.

Average Meal Cost Increase

For the average consumer paying €10 per meal, the expected increase of approximately €1.2 could pose a significant burden. This rise, coupled with concerns about escalating rent and energy costs, raises questions about the overall impact on the public.

As Germany navigates the complexities of economic stabilization, the reinstatement of the 19 percent VAT on restaurants and cafes has become a controversial step. While proponents argue it’s a necessary measure, critics fear the potential fallout. The concerns specifically revolve around local businesses, jobs, and the overall dining experience. The true impact will unfold in the coming months. This unfolding process will highlight the delicate balance between economic policy and the well-being of businesses and consumers alike.

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