In co-operation with Copenhagen Economics
In its 2006 report, the Federal Accounting Office determined that in fast-food-gastronomy VAT tax shortfalls of a double-digit million figure occur every year due to the abuse-prone differences in taxation between take-out food and food consumed in restaurants. If a customer buys food for immediate consumption in a restaurant, the fast-food business (since 1.January 2007) must charge the full 19% VAT. If the same customer buys the same food and eats it elsewhere, a VAT rate of only 7% is charged, usually on the same price for the food. Fast food outlets can exploit this difference by registering the sale of the product incorrectly as a street sale, increasing their net earnings by formerly ca. 9% or now 12%. The Federal Accounting Office is of the opinion that this problem can only be solved satisfactorily with new legislation. In its 2006 report, it requested the Federal Ministry of Finance to counteract the abuses and recommended eliminating the reduced VAT rate for street sales in gastronomy and introducing legislation requiring a uniform tax rate. The Federal Association of System Gastronomy commissioned the Ifo Institute to assess the effects of such a change.
The study contains extensive numerical data and graphics (descriptive statistics) for the economic development and the structural changes in the restaurant industry in Germany in general as well as system gastronomy and take-out eateries in particular. The market and competitive situation to directly competing branches of trade is shown. For comparison, the different VAT practice in the other EU member states is presented in tabular form. From the relevant studies, the experience of other countries is presented (literature study – analytical method).
The publications of the Federal Statistical Office as well as data of relevant enterprises are the basis for the analyses. In addition, Copenhagen Economics contributed its expertise based on extensive previous studies for the European Commission on a similar theme regarding VAT rates that deviate from the standard rat. thematic contents about tax rates.
The study reaches the conclusion that increasing the rate of VAT for take-out gastronomy from the current 7% reduced rate to the current standard rate of 19% is not to be recommended. Findings based on international comparisons show that a large gap between tax rates in the food market and take-out food strengthens the “do-it-yourself” trend with correspondingly negative effects on employment, especially among unskilled workers. In the United States, for example, about every fourth meal is prepared outside of the house (gastronomy including take-out food, cafeterias etc.); in Germany it is only every seventh meal.
According to the findings of the study, there are good arguments for the so-called “Austrian value-added tax model”, according to which foods have the same VAT rate regardless of whether they are bought at the supermarket or consumed – in prepared form – in restaurants. This would also eliminate the not inconsiderable surveillance efforts that are necessary to monitor “indoor” and “outdoor” consumption, which is particularly difficult with the great number of baker's and butcher’s shops that have their own snack bars. The grey area of taxation (and illicit transactions) created by the different taxation rates is considerable, according to studies by Prof. Schneider, Linz. Austria avoids many of these problems by applying the same reduced rate of VAT for food consumption, regardless of whether it is in-house or at home (10% as compared to the standard rate of 20%).
The key conclusions of the study, conducted by Ifo together with Copenhagen Economics, are not only supported empirically but also in theory. In addition, extensive numerical data document the dynamic development of system gastronomy and the quick-service sector in general. It does not appear advisable to hinder this development with taxation measures that are not well justified in theory and practice. There are instead good arguments for encouraging, via tax measures, the trend of eating out, since this is creating many jobs, not least for the low skilled.
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