VAT on food served in restaurants will reduce from the current 23%, to 13% in July this year in a welcome agreement between the government and its left wing allies. The easing of VAT does not cover drinks served in restaurants.
The delayed starting date for the new rate means the estimated loss of VAT revenue to the treasury will fall from €350 million to €175 million in this financial year.
The Secretary General of the Association of Hotels, Restaurants of Portugal (AHRESP), Ana Jacinto said today that the prime minister, António Costa, reaffirmed his commitment to lower VAT to 13% for restaurants.
The Associação dos Hotéis e Empreendimentos Turísticos do Algarve (AHETA) "applauded" the Government, “The lowering of VAT on food and drinks will contribute decisively to improve the working capital of hotel and tourism companies in the Algarve." This was before the 2016 draft Budget has been released and the detail showed that drinks were not included.
The trade body says that companies in this sector are undercapitalised due to the "fiscal choking" brought about by the 23% VAT rate imposed as part of the coalition austerity package. This brought about a rise in VAT receipts but a sharp increase in job losses.
The Algarve hotels association points out that about 30% of the average turnover of hotel companies in the Algarve is from sales of food and drinks, about €200 million a year, but wanted the government to go further and cap rates bills and other business taxes, “given that region is the largest and most important in Portugal.”
VAT on rounds of golf remains at 23%, "We can not but deeply regret the fact that the state budget does not provide for the lowering of VAT for golf, a product that contributes the most to ameliorating seasonality,” argued AHETA.
The Government is on a four year mission to create jobs, reducing VAT on food in hotels and restaurants is but one measure in its Major Planning Options for 2016- 2019.
In late 2015, a survey of 700 companies in the hotel and restaurant sector was commissioned to gauge the impact of a reduction in VAT to the old level of 13%.
"With VAT on food and drink services reducing to 13% in 2016, 77% of companies plan to create jobs," said the head of research at the association of hotels in Portugal, AHRESP, Pedro Carvalho, unaware of the government plans to drop the 'drinks' part of the deal.
Between 2012 and 2015, "with the brutal increase in the tax burden, nearly 60% of companies had to dismiss workers," a period that AHRESP calls "a perfect storm" for the industry.
"In addition, most respondents also intend to improve wages and working conditions," said Carvalho who pointed out the loss of 53,000 sector jobs in the first half of 2015 alone.
The VAT drop will be listed in the evasive 2016 budget and, unless Brussels objects, the rate will reduce half way through the financial year.
