Dehoga Casts Doubt on Restaurant Price Reductions Despite VAT Cut

In light of the recent announcement regarding the reduction of VAT on food served in restaurants, the German Hotel and Restaurant Association (Dehoga) has tempered expectations concerning potential price reductions for diners. The planned reduction from 19% to 7% is set to take effect on January 1, 2026, as per the coalition agreement between the Union and SPD.

This tax cut comes after a temporary reduction during the COVID-19 pandemic, which aimed to alleviate pressure on the hospitality sector amid rising energy costs post the Ukraine conflict. However, many restaurateurs remain skeptical about passing on these savings to customers.

Ingrid Hartges, the managing director of Dehoga, expressed that while the tax reduction brings relief to the beleaguered industry, the actual impact on consumer prices will depend heavily on the ongoing cost pressures faced by restaurant owners. Hartges noted that a significant portion of their operating costs--about 70%--is absorbed by personnel and goods expenses. With the labor costs in the hospitality sector having surged by 34.4% since early 2022, any potential savings might be offset by these escalating expenses.

Despite some establishments in Berlin reportedly lowering their prices, Dehoga cautioned that such practices are not universal. Hartges highlighted the precarious state of many businesses, with nearly 40% of surveyed operators fearing they might slip into the red by 2025.

Consumer advocacy group Foodwatch has also weighed in, suggesting that the benefits of the VAT reduction may not reach a broad audience. They argue that only those who can afford to dine out will see any advantage, and have proposed a more comprehensive reform of the VAT system that could benefit all consumers, suggesting that taxes on fruits and vegetables should be eliminated while increasing taxes on meat and other animal products.

As the hospitality sector grapples with rising costs and fluctuating demand, the long-term implications of the VAT reduction remain uncertain. With many businesses still recovering from the impacts of the pandemic and geopolitical tensions, the path forward appears challenging.