The Seimas returns to a new facility for restaurants and cafes: promises to help with recovery

Restaurants and cafes currently have a standard rate of 21 percent. VAT. The Seimas intends to examine the possibility of applying a 9% preferential. VAT rate.

Last April, the new Prime Minister Ingrida Šimonytė, together with the Chairman of the Budget and Finance Commission Mykolas Majauskas, registered the new charity project, the previous government did not approve the project, but currently plans to return to it.

M. Majauskas reported that the first hearings with business representatives will take place on Tuesday, and the commission members should decide on the future of the amendment in the near future.

“At the Prime Minister’s initiative, we propose to return the issue of VAT rebate to the catering sector to the Seimas agenda. In response to the still difficult economic outlook, we propose a VAT rebate for catering companies, currently at the standard rate 21%, reducing the tariff to 9% “, says M. Majauskas.

The effective date, he said, will depend on the position of the prime minister and the possibilities of the state budget.

M. Majauskas assures that the VAT reduction is not intended so much to reduce the prices of services in restaurants or cafeterias, but to support small businesses, since the services are mostly provided by small and medium-sized businesses and family businesses. . Although the restaurants and cafes are not currently operational, a longer period is expected when quarantine restrictions are lifted.

“The catering sector employs around 30,000 people and 4,000 companies, most of which are small and medium-sized. Unlike large companies, a small business does not have the opportunity to accumulate reserves for the crisis, so under current conditions they are forced to drastically reduce costs, lay off employees. State aid packages amortize part of the costs, but far from covering the significant losses suffered ”, argues M. Majauskas.

He is convinced that without drastic measures, companies will not be able to manage the painful long-term consequences: the recovery in this sector will take time, as some potential customers will continue to avoid socialization, some revenues will fall, and companies will go into debt and grow. accumulates losses.

“Although the VAT rebate would have minimal impact during quarantine, it would help mitigate the economic consequences of a pandemic and quarantine and accelerate recovery after a normal situation.” Furthermore, the relief could become an additional incentive to reduce the generalized shade ”, says M. Majauskas.

The new relief comes at a time when the Finance Ministry has begun reviewing all existing tax breaks.

“Exceptional economic circumstances require quick solutions and we must be prepared for that. Many parts of the EU countries are taking advantage of the benefits of VAT to help the restaurant sector recover after quarantine, so this is worth discussing. seriously with us ”, explains M. Majauskas.

Previously, the government did not agree: it would cost 90 million. euros

The previous government did not support the registered proposal of M. Majauskas, arguing that establishing a reduced VAT rate of 9 percent for specified food and beverage services, except for the trade in alcoholic beverages, would result in the loss of the state budget of approximately LTL. 90 million. EUR VAT revenue per year.

The previous government also explained that many sectors of activity had difficulties during the pandemic, so it would not be reasonable to highlight one of them and introduce a VAT rebate for the deliveries of goods or services.

M. Majauskas admitted that a large amount of money would be needed for this budget benefit, but according to him, today it is important to give companies a perspective that after the epidemic and economic constraints, this sector will be helped to stay on its feet. . his own two feet.

The Seimas Legal Department also pointed out deficiencies: it assessed that the wording “for food and beverage services” proposed in the draft is not clear.

“It should be noted that, for example, large supermarkets also offer food and beverages. It is not clear from the project or its explanatory memorandum how the goods to be supplied are to be distinguished from the services. Consequently, the project needs to be adjusted ”, said the lawyers in their conclusions.

M. Majauskas points out that the wording of the project can be further clarified so that large merchants cannot use such a clause.

The lawyers also noted that the new tax changes must take effect no earlier than 6 months after the publication date, and the bill provides for entry into force immediately after signing.

M. Majauskas explains that it is currently necessary to review the budget, and together with the budget review, it would be possible to adjust the VAT law, in addition, at present, such modification is possible due to extraordinary circumstances due to the pandemic. The parliamentarian emphasized that in most European countries there is already a VAT exemption for catering providers.

“21 of the 26 EU countries apply VAT relief to the restaurant services sector. Experience shows that the introduction of a reduced VAT rate for the restaurant sector has a significant impact on the creation of new jobs of work ”, assures M. Majauskas.

The explanatory memorandum of the bill states that in Sweden in 2012 Following a reduction in the VAT rate applied to restaurants from 25% to 12%, the number of new jobs in the sector increased by 8% and 6% %, respectively, in 2012 and 2013, and in Germany in 2010. The reduction of the rate from 19 to 7 percent created 46,666 new jobs in 6 years.

“In response to the impact of the COVID-19 pandemic on EU economies, the European Commission has relaxed state aid rules for businesses, allowing measures such as VAT relief for specific industries to combat the effects of the crisis. economic, thus paving the way for more effective crisis management “, Majauskas.

Seimas researchers assessed that entrepreneurs benefit the most

Last September, the Seimas Research Division prepared a review in which it was assessed that the pandemic crisis in many countries has prompted decisions on the introduction of tax rate reductions as a way to compensate for the losses from the crisis.

VAT is a tax levied on goods and services purchased by the final consumer. After setting 9 percent. VAT rate, seller must add 9 percent. VAT at the sale price and transfers this amount to the tax administrator.

“The system that actually exists in the EU is not a single VAT rate system. Different VAT rates create a highly diversified and extremely complex VAT system. The standard VAT rate, which accounts for around two-thirds of European consumption In total, it ranges between 17% and 27%. The remaining third is subject to different types of VAT, ranging from 0% to 27%, “the researchers point out.

In the cases analyzed, the impact of the reduction in VAT rates on restaurant prices in Europe was lower for consumers and greater benefits for companies. For example, July 2010. In Finland, the VAT rate for the restaurant sector has been reduced from 22%. up to 13 percent. Prices have fallen an average of 2.1%, but if the VAT reduction had been “passed on” completely to end consumers, the price would have fallen by 7.4%, according to the study.