Lithuania’s public dining sector is facing severe stagnation with profit margins dropping to just 2 percent, according to figures discussed during a Wednesday meeting of the Seimas Committee on Economic and Innovation Affairs. Industry representatives warn that ongoing cost pressures are driving businesses toward bankruptcy or the shadow economy, while government officials remain divided over potential tax relief measures.
Stagnation and Rising Costs in Lithuania’s Restaurants
The public dining sector has experienced no meaningful change for two consecutive years, according to Evalda Šiškauskienė, director of the Lithuanian Association of Hotels and Restaurants. She notes that business expenses have outpaced revenues for two straight years, leaving operators with stark alternatives.
Arba bankrotas, arba šešėlis, arba kažkoks išgyvenimas,
Šiškauskienė states, describing the pressure on operators.
Did You Know? Lithuania’s public dining sector consists of approximately 84 percent small businesses, regional enterprises, and small companies, with traditional restaurants accounting for only about 4 percent of the market, according to the Lithuanian Association of Hotels and Restaurants.
Financial Disproportions Highlighted by iLunch
Donatas Vaitasius, executive director of the smart daily lunch restaurant chain iLunch,
points to a sharp disparity between state revenue collection and business earnings. He explains that for every euro generated by restaurants, the state collects about a 20 percent return, while the business retains roughly 2 percent.
Operating a network of about 40 restaurants with an annual turnover of 20 million euros, the chain retains approximately 400 tūkst. euros per year. Vaitasius notes that this averages out to 10 tūkst. euros per restaurant annually, remarking that a dish washer may soon earn more than a business owner managing such an enterprise. This level of return makes it impossible to open even a single new restaurant location, leaving project development completely stalled.
Proposals for VAT Reduction and International Comparisons
Industry groups are pushing to lower the value-added tax (VAT) for the dining sector from 21 percent to 12 percent, arguing that the reduction would help lift profit margins to around 5 percent. Proponents point to neighboring and regional markets as precedents, noting that Estonia, Ireland, and Germany have adjusted their hospitality tax rates to support businesses through difficult economic cycles.
Expert Insight: Debates over targeted value-added tax cuts in the hospitality sector often expose a fundamental policy tension between supporting struggling small businesses and maintaining broad tax system neutrality. While industry representatives argue that lower rates directly preserve jobs and combat the shadow economy, fiscal authorities must weigh the aggregate cost of tax expenditures against competing public sector priorities.
Ministry officials discuss sector profitability
During the committee meeting, representatives from the Ministry of Economy and Innovation acknowledged the sector’s difficulties. Vice-Guoda Burokienė noted that while the sector saw a slight summer improvement, profitability remains low at 2.2 percent, suggesting that discussions about a VAT reduction are worth having. However, she added that tax relief alone would not solve regional challenges where local dining-out culture remains limited.
Titas Budreika, an economist at the ministry, cited an April study indicating that a VAT reduction could lift sector profitability by 2 to 3 percentage points. Nevertheless, he cautioned that the measure would not necessarily translate to lower prices for cafe customers.
Meanwhile, the Ministry of Finance expressed skepticism regarding targeted tax breaks. Vice-Minister Kęstutis Kvaraciejus emphasized that state tax reliefs cost a significant sum annually and require rigorous evaluation. He also noted that countries applying reduced VAT rates for restaurants often maintain higher standard VAT or corporate tax rates elsewhere in their tax systems.
Frequently Asked Questions
What is the current profit margin for cafes and restaurants in Lithuania?
According to figures presented by industry representatives at the Seimas committee meeting, the current profit margin for cafes and restaurants stands at approximately 2 percent.
What tax rate change is the public dining sector requesting?
The sector is asking lawmakers to reduce the value-added tax (VAT) rate for public dining from the standard 21 percent down to 12 percent.
How does the state’s return compare to business earnings in the sector?
Industry data indicates that for every euro generated by restaurants, the state collects about a 20 percent return, while the business retains roughly 2 percent.
What steps should policymakers take to balance support for struggling small businesses with broader fiscal responsibility?