Restaurateurs and customers waiting for reduction in VAT

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Helsinki entrepreneurs Marika Halonen and Pauliina Turtiainen who own a café in Helsinki’s district of Töölö, took great delight in learning that the long-awaited reduction in the value-added tax (VAT) on restaurant food is eventually to be implemented.
     VAT on restaurant food is to be dropped from 22% to 12%.
     Halonen and Turtiainen were less pleased to hear that in practice the actual reduction in VAT will not take place until next year at the earliest.
     ”We do not want to guess at the date, but it will be some time in 2011 at the latest”, said Tommi Parkkonen, a senior official at the Ministry of Finance. The European Union countries are to make a decision on a specific date in the autumn.
     
Speaking on behalf of small cafeterias in particular, the cafeteria owners hope that the VAT could be lowered already next autumn.
     ”At present it is difficult to know what the situation will be in 2011. Maybe the recession will then be over”, says Marika Halonen in the back room of Cafe & Eepos, where she is baking products for sale at her cafeteria.
     Halonen and Turtiainen set up their cafeteria on Helsinki’s Runeberginkatu four years ago. Some 150 customers visit their coffee bar on a regular day. More than half of them are diners, Turtiainen estimates.
     The owners are trying to estimate how much a customer would benefit if the cut in VAT were to take place immediately.
     ”For example, the reduction would be about 50 cents off the price of a soup that costs seven euros”, Halonen calculates.
     ”The customer might regard the reduction as small, but this is how much a 6-7% reduction in VAT on food would mean in practice”, Turtiainen continues.
     
The planned reduction in VAT on restaurant food will have to be implemented as soon as possible, says The Finnish Tourism and Restaurant Industries Federation (MaRa).
      The EU member countries decided on Tuesday that VAT on restaurant services could also be dropped from 22% to 12%.
     ”The matter is urgent as the VAT on restaurant food is to be reduced as well”, said Timo Lappi, the Managing Director of MaRa.
     Next autumn could turn out to be difficult for lunch restaurant, as the VAT on foodstuffs will drop from 17% to 12% in October.
     ”Retailers have long been developing warm lunch products, and with the VAT reduction their competitive advantage will be unreasonable. Moreover, it is bound to distort competition”, Lappi charges.
      Jouko Heinonen, the Vice President of Restaurant Operations at HOK-Elanto, a part of the S-Group, notes that the VAT reduction on restaurant food and services is important precisely for this reason. The Group has some 60 restaurants in Helsinki, including the restaurant chains Rosso, Chico’s, and Amarillo.
      ”If the decision on the VAT reduction on food had not been made, the price for food at restaurants would have been too high compared with that in supermarkets and other food retailers. Customers would have started to go to supermarkets to purchase food instead of going to eateries.
     
Customers Markku and Pirkko Vuorensola were examining the menu at Chico’s on Wednesday afternoon. They wanted to have something to eat before going to the movies.
      ”It would sure be nice if the price of food went down”, said Markku Vuorensola with some skepticism.
     He hopes that the planned reduction could at least prevent prices from rising further. He still remembers how only around half of the hairdressers and barbershops passed the VAT cut onto their customers. He and his family eat out at restaurants a couple of times every month.
     
The VAT cut will lower the prices of restaurants, believes Kasperi Saari, the Managing Director of Royal Restaurants. The chain has 25 restauants in Helsinki, including Macu, Nokka, and Sipuli.
     The upcoming reduction is believed to reduce prices by 6.6 to 8 % on average, depending on the way of calculation.
     
”The VAT cut will have a stimulating effect on employment, which is excellent under the present circumstances”, notes Saari.
     Even Jouko Heinonen promises that the reduction will lower prices at HOK Elanto restaurants.
     ”The price decrease will be some 8 %”, Heinonen predicts.
     Jouko Heinonen believes that as a consequence of the reduction, those customers who pay for their food out of their own pockets will also eat out more frequently.
     
As a result of the planned VAT reduction, the state will lose EUR 315 million annually.


Previously in HS International Edition:
  Study: Reduction in VAT would bring lower food prices (26.9.2006)
  Price of food may come down also in restaurants and cafeterias (9.2.2009)
  Budget talks: VAT on food to be cut in 2009 (31.8.2007)

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