Proposal to reduce Value Added Tax on Restaurant and Catering Services

06 May 2011

Jakob Lamm, David Nilsson, Sara Sparring

In April, the Swedish government presented the spring financial bill for 2011. The bill commences by stating that Sweden’s currently strong financial position lays the foundations necessary to continue in the implementation of pivotal parts of the joint manifesto of the parties which form the Swedish minority right/centre government.

The bill presents guidelines for the financial policy ahead and forms the framework for the 2012 state budget. The principal aim of the bill is to implement measures which will combat unemployment by providing the right incentives for the Swedish labour force and to further lower the barriers to businesses.

The way forward is partly, according to the government, to stick to the already laid down and implemented strategy of lowering taxes for the Swedish labour force. Income tax has already been lowered in four stages and a fifth stage is currently being presented.

In order to assist in the creation of more jobs, the government is also introducing a reduction in the levels of value added tax for labour intense services. The government has singled out the restaurant and catering services sector as a particular area where a reduction in value added tax would create more jobs.

In December 2010, the government launched a special inquiry with the purpose of looking at the possibility of reducing the value added tax for restaurant and catering services. In March 2011, the appointed committee released an interim report.

In the interim report, the committee concludes that a reduction in value added tax from 25% to 12% will not only create new jobs but also increase the efficiency of the labour market. In total, the committee estimates that the reduction will result in 6,000 new, fulltime, jobs.  

The committee also concludes that the current different rates of value added tax for various foods in the restaurant and catering services industries results in difficult borderline issues, and thus further distorts competition. The committee accordingly concludes that setting a common rate of value added tax in the food and restaurants sectors will reduce the administrative burden for businesses in these sectors.

According to the proposal, beer (>3.5% alcohol), wine and spirits will not be covered by the reduced tax rate.

The committee proposes that the legislation should come into force on 1 January, 2012.