Only 1% of restaurant dishes became cheaper after Germany cut VAT from 19% to 7%, according to a new study
Germany’s €4 billion restaurant VAT cut has largely failed to translate into lower prices for diners, according to research commissioned by the Food, Beverages and Catering Union (NGG).
Germany permanently reduced VAT on restaurant and catering food from 19% to 7% from 1 January 2026. Drinks remain subject to the standard 19% rate. The measure fulfilled a commitment in the government’s coalition agreement, with the Federal Ministry of Finance saying the reduced rate would also contribute to price stability.
However, the first substantial study of prices since the change suggests restaurants have largely retained the VAT saving rather than passing it on to customers.
91% of restaurant prices unchanged
The study, conducted by wmp consult for NGG, compared more than 180,000 dishes at over 12,000 restaurants before and after the VAT reduction.
It found:
- 91% of dishes remained at the same price
- around 8% became more expensive
- only around 1% became cheaper
- average prices actually increased by 0.5%
NGG calculates that, had the VAT reduction been passed on in full, consumer prices could theoretically have fallen by around 10%.
The study compared prices in October 2025 with those in February and March 2026. NGG notes that there were no significant increases in the relevant underlying costs during the period, with the notable exception of an 8.4% increase in Germany’s statutory minimum wage.
Who benefited from the VAT cut?
The findings illustrate a recurring problem with using reduced VAT rates as a tool to lower consumer prices.
A VAT rate cut does not require a business to reduce its VAT-inclusive selling price. A restaurant can instead maintain the same gross menu price, account for less VAT to the tax authority and retain the difference as additional net revenue.
That appears to have happened across much of the German restaurant sector.
The findings do not necessarily mean the policy provided no benefit. Restaurants have faced significant cost pressures in recent years, and the lower VAT rate may have supported margins, investment or business viability.
But if one of the policy objectives was to reduce or stabilise prices for consumers, the NGG data suggests that very little of the tax reduction has so far reached diners.
VAT cuts do not guarantee price cuts
Germany provides another useful case study in the economics of reduced VAT rates.
Governments can change the VAT rate overnight. They cannot determine how much of that reduction businesses pass through to consumers.
The final effect depends on pricing decisions, competition, wages, input costs and the financial position of businesses. A VAT reduction can therefore become a consumer price cut, higher business margins, higher wages, or some combination of all three.
In Germany’s restaurants, the early evidence suggests the immediate effect has overwhelmingly been to leave menu prices where they were.
