Update 11/18/23: Recent Developments in the Value Added Tax Debate The recent decisions by the German government regarding value-added tax (VAT) in the gastronomy sector have significant implications for the industry. The determination of the coalition government not to extend the reduced VAT rate for restaurant meals beyond 2023 has sparked discussions and concerns within the gastronomy and hotel industry. This decision is likely to be enshrined in the federal budget for 2024.
Industry associations such as DEHOGA have voiced their opposition to this change. Guido Zöllick, President of the DEHOGA Federal Association, emphasizes that this decision could have serious consequences for the gastronomy sector, warning: “With the tax increase to 19 percent starting on January 1, 2024, thousands of livelihoods are at risk, and it threatens the loss of quality of life and gastronomic diversity.” He also highlights that this increase will particularly impact financially disadvantaged population groups.
Furthermore, the German Tourism Association and the Federal Association of the German Tourism Industry have expressed concerns about the potential negative effects of this tax change on tourism in Germany. They see the VAT increase as a threat to the tourism sector in Germany and the entire tourism value chain.
In light of these developments, it is crucial for businesses in the corporate travel sector, as well as providers of accommodations and gastronomy, to consider these changes in their planning. ehotel® will continue to serve as a reliable partner for these industries in this evolving business landscape.
The Two Sides of the Value Added Tax Change
As a provider of hotel booking solutions for business travellers, ehotel® and its corporate clients are directly impacted by tax changes. The anticipated end of the reduced VAT rate of 7% on meals on 31/12/2023 – while drinks remain taxed at 19% – has implications beyond the financial books. This disparate VAT system may alter how corporations strategize and implement business travel.
Background
On 1 July 2020, a temporary VAT reduction measure was implemented as part of an economic stimulus package in response to the Corona pandemic. This has impacted both restaurateurs and companies conducting business travel in various ways and will remain in effect until the end of 2023.
A calculation example to illustrate the point
A company sends five people to a three-day conference in Munich. A dinner there costs €100 per person. Since the meals are currently subject to the reduced VAT rate of 7% and the drinks are subject to the normal rate of 19%, the expense receipt must be split. If the receipt contains 70 Euros for meals, the net amount is 65.42 Euros (70 Euros divided by 1.07 to get the net amount) and if 30 Euros are for drinks, the net amount is 25.21 Euros (30 Euros divided by 1.19 to get the net amount). The total net amount is therefore 90.63 euros per person per day. With five employees and three days, the total net cost is 1,359 euros.
Cost disadvantage for businesses: The reduced VAT rate on meals leads to an increase in the net amount effectively paid by businesses. In the end, this is a tax disadvantage for companies, especially as the expense voucher now has to be split, which complicates the accounting process.
Cost advantage for hosts (restaurants and hotels): For hosts, the reduced tax rate means a significant financial advantage. Instead of having to pay 19% tax on the total bill, this amount is reduced to only 7% for meals. This significantly increases the margin for these service providers.
In summary, the different VAT rates have an impact on the cost structure of business travel and on the profitability of hosts. While companies have to adjust their expense policies and pay more for the same service, hosts benefit from an increased margin. Both parties need to factor this new environment into their planning and pricing.
Advantages and disadvantages
|
Company |
Host (Hospitality & Hotels) |
|
|
Reduced VAT Rate on Food |
Cost Disadvantage |
Cost Advantage |
|
Splitting of the Expense Receipt |
Cost Disadvantage |
Cost Disadvantage |
|
Increased Net Amount on Food |
Cost Disadvantage |
Cost Advantage |
|
Increased VAT Rate on Food |
Cost Advantage |
Cost Disadvantage |
Businesses have benefited from the tax cut in a number of ways:
1. cost reduction: this is a direct benefit as lower taxes lead to lower costs for services that businesses use. For business travel in particular, this could be the cost of hotels and restaurants.
2. increased liquidity: This refers to the financial benefits. Money saved can be used elsewhere in the business, contributing to improved cash flow.
3. simpler accounting: adjusting the VAT rate can reduce the administrative burden of accounting by making the calculation less complex.
4. stimulating business travel: This suggests that despite the economic uncertainty caused by the pandemic or other factors, business travel was still possible due to the financial savings.
5. pricing flexibility: companies may be in a better position to offer discounts or achieve higher margins as they benefit from the tax relief.
6. better financial planning: reduced business travel expenditure allows companies to make more accurate forecasts about their future finances.
7. Increased business opportunities: With reduced travel costs, companies may be motivated to enter new markets or strengthen partnerships that require face-to-face meetings.
8. Employee satisfaction: Some employees see business travel as a perk or a break from routine. Lower costs could allow companies to offer this opportunity to more employees.
9. stronger negotiating position: companies could have a stronger negotiating position with suppliers or partners as they benefit from the cost savings.
It should be noted that these benefits may vary depending on the type of company, industry and individual circumstances.
The DEHOGA perspective
The German Hotel and Restaurant Association (DEHOGA) sees the VAT reduction as an important measure to stabilise the industry during the pandemic. It enabled many businesses to survive despite limited capacity and hygiene measures. The reduced rate allowed restaurateurs to maintain competitive prices while covering their operating costs. There are concerns that the end of this reduced rate will have a significant impact on price structures and ultimately on the consumer.
DEHOGA Director General Ingrid Hartges also pointed to these impending consequences: “If the tax were to be increased, a further 12,000 businesses would go out of business,” she told the newspapers of the Funke media group.
To back up this position, DEHOGA has launched a petition to keep the 7% VAT on food in the catering industry.
The Future of Business Travel In the Context of VAT Changes
The reinstitution of the standard VAT rate could present unanticipated advantages for businesses with travel expenses, but may also pose obstacles for the hospitality sector. A greater tax rate equates to an increased net revenue for the same overall expenses for businesses, potentially allowing them to uphold or even enlarge their travel budgets. Nevertheless, hotel owners and restaurateurs may have to augment their prices to counterbalance the tax modifications. This could exert pressure on pricing for business travel, presenting a challenge for firms and providers of lodging and food services.
Conclusion:
The reduction in VAT has brought clear benefits to the hospitality industry. Paradoxically, however, it has led to an increase in the net cost of business travel for companies. The impending return to the standard rate of tax represents both an opportunity and a challenge. ehotel® remains a trusted partner to corporate travel and hospitality companies in an ever-changing business environment.
Our “ehotel® Central Billing“, the central payment and billing system, accurately reflects these rates. As a result, ehotel® provides companies with a transparent solution that can be seamlessly integrated with their existing systems.
Further interesting articles:
ehotel® makes hotels’ carbon footprints visible
Hotels to recharge: Find e-charging stations with ehotel®
Best rated: ehotel® stands out in n-tv study
ehotel® Analytics: Transparent with Real-Time Relevant Metrics