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Restaurants face 10% rise in VAT in 2012

By Emma Bertenshaw [email protected]

Portuguese restaurants face an increase in VAT charges on food and beverages next year, from the current 13% to 23%.

In an area such as the Algarve, which relies heavily on tourism, this is worrying for many who must find ways of making their business cost-effective and profitable.

Customers are able to eat relatively cheaply in Portugal and it is thought that the new higher tax could force some of the smaller establishments out of business.

José Tasso owns four Don Toro steak restaurants and a tapas bar Meu Limão in locations across the Algarve and feels that the changes will hit smaller businesses that focus only on serving the Portuguese market.

“The economic reality does not allow us to increase prices. We will have to slowly move away from a more traditional restaurant business model while keeping our high food quality standards,” he said.

“In the USA it is already common to see guests ordering and paying at the counter even at restaurants as well as hiring and training under-qualified staff to lower HR costs.”

Restaurants already work with tight profit margins so these changes will inevitably mean staff reductions in most cases.

This past week Paulo Portas, the minister for Foreign Affairs spoke at the Iberian-American Summit in Paraguay, stating that Portugal would commit to meeting the deficit reduction targets set in order to promote confidence in the country´s economy.

The association for hoteliers, restaurants and related businesses AHRESP (Associação da Hotelaria, Restauração e Similares de Portugal) meanawhile is hoping to negotiate a smaller increase to meet government targets whilst easing the burden on business.

It is clear that the message for all is to adapt to the changes or be left behind.

In catering the challenge has always been to meet high standards in food and service while also keeping running costs low.

It will also be important to see how restaurants can differentiate from their competitors to entice visitors who are ever more demanding.

Portugal could struggle to compete with Spain and France as a holiday destination, where in the latter VAT is now only 5% to stimulate economic growth.

In Almancil José Borges, owner of Fuzio’s restaurant, is concerned about the message that such measures gives to his customers.

“Most of my customers are from the UK and they ask about the changes but we have no clear information. The cost increase will have to be passed on or we will make no profit as utilities are also going to increase in price.”

He also thinks that the combination of tax increases on restaurants and the new toll road could deter Spanish visitors, who make up to 20% of his business.

“These measures have been poorly handled by the Government. It will mean a serious down-turn in the Algarve tourist industry, which is already badly affected.”

Do you have a view on this story? Please email Editor Inês Lopes at [email protected]