VAT on normal value
Fratzscher expects restaurant prices to be 10 percent higher
November 18, 2023, 3:25 a.m
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Hotels, bars and restaurants had a particularly difficult time during the corona pandemic. At the beginning of the year, a relief from this period – the reduced VAT rate – will no longer apply. The President of the German Institute for Economic Research thinks this is logical.
The economist Marcel Fratzscher has welcomed the traffic light plans to return to the regular VAT rate in the catering industry – and predicts rising prices for consumers. “Probably 70 to 80 percent of the twelve percentage points that VAT is now increasing in the catering industry will be passed on to customers,” said the President of the German Institute for Economic Research (DIW Berlin) to “Spiegel”. That would correspond to around ten percent higher prices.
Fratzscher refers to experiences from the nationwide VAT reduction in the second half of 2020. Some restaurants may also have a profit buffer: “The catering industry has already increased prices significantly more than inflation in the last two years.”
Economist does not expect a wave of bankruptcies
The economist defends the abolition of the tax privilege at the beginning of the year. “There is no longer any justification for extending the VAT reduction,” said Fratzscher. The aim was to help the industry that was particularly hard hit by the corona crisis. The reduction “is expensive, the money is missing somewhere else, for basic child security and the fight against poverty,” he says.
In addition, according to Fratzscher: “It is a tax cut that primarily benefits higher earners and not a socially balanced relief. People who work at the minimum wage usually cannot afford the offers anyway.”
He doesn’t expect a wave of bankruptcies feared by industry representatives – and argues: “The VAT was reduced so that it would be cheaper for customers and thus increase demand. The reduction should not primarily be a direct subsidy for companies.” If companies have to file for bankruptcy, it is not necessarily due to VAT, but rather due to structural reasons such as a lack of skilled workers or changing customer needs. The proportion of business trips has declined significantly due to the pandemic.