A Glimpse into the Future: Southwestern Hospitality Boosted by Tax Cut on Food
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Swift Culinary Industry Leans on Tax Reduction Policies in the Southwest - Southwestern cuisine aims for reduced tax burden
The hospitality industry in the Southwest, buoyed by the prospect of a lower tax on food, is feeling a renewed sense of optimism. "A reduced tax rate on food services means a chance for investment," stated Fritz Engelhardt, head of the German Hotel and Restaurant Association (DEHOGA) in the region, at the Spring Festival in Stuttgart. "This translates to better prospects for the hospitality industry and tourism in even the most rural areas. Additionally, it offers more opportunities for excellent hospitality in our city centers."
The federal government, formed through the joining forces of the Union (CDU/CSU) and SPD, intends to permanently decrease the value-added tax (VAT) on food in the hospitality sector from the current rate of 19% to 7%, effective January 1, 2026, as outlined in the coalition agreement. During the COVID-19 crisis, such a decrease to the reduced tax rate was already in effect as a form of aid for the industry, but it was only a temporary respite, set to expire at the end of 2023.
An analysis by DEHOGA indicated that only a small percentage of restaurant proprietors managed to implement the necessary price adjustments following the expiration of temporary relief. Many others either had to suffer the consequences or, for instance, delay essential investments. The hospitality sector has also grappled with a difficult economic climate and escalating costs - for instance, costs related to food, labor, and energy. These challenges have extended to restaurant patrons as well, forcing operators to make adjustments in their operating hours and offerings. Since 2019, over 3,200 hospitality establishments have closed - many of them in rural areas.
Continued Revenue Losses
Following a challenging 2021, the revenue of the hospitality industry continued to dip at the beginning of the year. Data from the State Statistical Office revealed an overall decrease of 5.3% in January and February, once adjusted for inflation. In the classic food service sector - which includes restaurants, hotels, cafes, snack bars, and ice cream parlors - the revenue decrease was 4.9%.
Engelhardt remained confident that the tax cut would ultimately be beneficial for everyone involved: "Because if we invest and create jobs, public funds also prosper," explained Engelhardt.
- Hospitality Tax Cut
- Germany
- Southwest
- Federal Government
- DEHOGA
- Hotel and Restaurant Association
- SPD
- Coalition Agreement
Enrichment Data:
Industry Finances
- The VAT reduction is expected to provide respite to hospitality businesses, many of which have been grappling with rising costs, particularly in labor, food, and energy expenses.
Regional Impact
- Rural Areas: Hospitality businesses in rural regions may profit from the VAT reduction if demand improves, but they could face challenges if the savings are absorbed by ongoing cost pressures.
- Urban Areas: Urban establishments, particularly those in tourist-heavy districts, might experience a marginal increase in competitiveness if they pass on a portion of the savings to customers. However, for many city-center businesses, high operational costs, particularly labor costs, could limit the efficacy of the tax cut in driving price reductions.
Tourism Effects
- Dining Out: A reduced tax rate on food could make dining in both rural and urban areas more appealing, potentially boosting demand for the tourism industry.
- Regional Tourism: Rural tourism destinations might experience a significant impact if local businesses use the VAT reduction to offer competitive prices or invest in quality improvements. However, the overall effect on tourism will depend on how businesses manage their margins and whether the tax cut is perceptible to consumers.
- Tourist Spending: If restaurants choose to lower prices, tourists may have more disposable income for exploring other local offerings, potentially benefiting the regional economy.
Cautions and Engelhardt's Perspective
- While many see the tax cut as a step in the right direction, industry representatives remain cautious. They emphasize that the savings may not necessarily result in price reductions for consumers, as ongoing cost pressures could offset the benefits. Engelhardt, for instance, warns that the tax reduction, while beneficial, is only a piece of the puzzle and continues to advocate for the federal government's support for the industry during these challenging times.
- The tax cut on food in the hospitality sector, as outlined in the coalition agreement, will be reduced from 19% to 7%, effective January 1, 2026, according to the federal government.
- The reduction in VAT is expected to offer more opportunities for vocational training programs in the hospitality industry in rural areas, as stated by Fritz Engelhardt, head of DEHOGA in the Southwest.
3.With the prospect of reduced costs, the hospitality industry, including restaurants, hotels, cafes, and snack bars, may witness renewed prospects and investments, as suggested by Engelhardt.
- Many prospective individuals in the hospitality sector, such as 'restaurateurs', might find increased business and finance prospects with the permanent VAT reduction on food services.
