Germany Calls for End to Reduced VAT for Restaurants

Germany's Council of Economic Experts recommends abolishing the reduced VAT rate for restaurants, arguing it benefits large chains rather than small businesses, costing EUR 3.4 billion annually, and suggests reallocating funds to better priorities.

The head of Germany’s Council of Economic Experts has called for the reduced VAT rate for restaurants to be abolished.

From 2026, food served in restaurants is taxed at the reduced VAT rate of 7% instead of the standard 19%. The measure was introduced to support the hospitality sector, especially restaurants facing higher costs, weaker demand, and more insolvencies.

However, the council’s chair argues that the policy is not working as intended. According to this view, the tax benefit does not mainly support small traditional restaurants, but is also used by large international fast-food chains. This raises questions about whether the measure is the best use of public money.

The reduced VAT rate is estimated to cost the German state around EUR 3.4 billion per year. Because of this, the adviser believes Germany should review this measure together with other subsidies that may be expensive, outdated, or poorly targeted.

The debate is part of a wider discussion about Germany’s public finances and economic policy. The country is under pressure to reduce inefficient spending while also investing more in infrastructure, modernization, and new technologies such as artificial intelligence.

In simple terms, the key question is whether Germany should continue using public money to support the restaurant sector through lower VAT, or whether that money should be redirected to more effective long-term economic priorities.