Lithuanian Hospitality Business in Decline

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Energy Bills Plus VAT Expiry Causing Closures

High electricity bills are pushing many restaurants and cafés in Lithuania to close down, but the government is not planning any relief, reports LRT. Having struggled during the pandemic, restaurants are now being hit by huge gas and electricity bills. For example, the Tabera restaurant in Vilnius, celebrating its 27th anniversary this year, is now operating in crisis mode – only three employees are left and they work but a few hours a day, during lunch. Heating is turned down to the minimum. The family business, which was doing relatively well before the energy crisis, is planning to close temporarily and reopen when the heating season is over.

Keisti Ženklai, another café in Vilnius, open for 25 years, is now closed. The manager says it is not planning to reopen. Difficulties started during the pandemic, but the energy price shock may be fatal.

Businesses that rent their premises are in an even more precarious position – taking a break for the winter is impossible, since they would still need to pay rent, which is not even the biggest expense. Liutauras Čeprackas, head of the Association of Caterers, says: “We are already paying two or three times more for electricity than we pay for rent, even before we get the heating bills”.

In August, 11 out of 70 companies that went bankrupt in Lithuania were catering companies, according to data from Creditinfo. In September, eight out of 64 were restaurants or cafés.

A total of 134 companies went under in the country during the two months, including 19 catering establishments, or 14 percent of all bankruptcies.

Another hit may come in January, when a 9-percent VAT rate, introduced by the government to help cafés and restaurants survive the Covid-19 lockdowns, expires. (The Value-Added Tax (VAT) is a tax payable on sales of goods or services within the territory of the Member States of the EU. The tax, in all cases, is ultimately payable by the final consumer.) Finance Minister Gintarė Skaistė says that the measure was temporary, will expire at the end of the year, and the government is not planning to extend it. Instead, Skaistė says, the government is planning to offer preferential loans for businesses in need of cash.

However, in order to qualify for the loans, businesses need to prove they are viable and will be able to pay them back.

Restaurant, café and bar owners say they need real support. Economists also agree that the time has come for the government to support business so that it does not have other problems later on: bankruptcies and rising unemployment. “The rise in bankruptcies is not only a blow to the sector, but to the whole labour market. And then this hit could have a domino effect on the entire economy,” says Jekaterina Rojaka, head of Business Development at Creditinfo Lithuania.

“We are considering and calculating a measure for the businesses that are hardest-hit by the energy crisis, those whose energy costs account for at least 10 percent of their total costs,” Finance Minister Skaistė says. “Those businesses that meet this definition are likely to be offered a tax deferral measure.” Restaurant and café owners say the sector will soon become extremely stratified in terms of quality and prices. What will be left are upmarket restaurants and cheap snack bars – and very little in between.

Several dozen hotel and restaurant owners and managers protested outside the Lithuanian government office in central Vilnius on September 27 over the government’s plans to end VAT exemptions for catering businesses.

If the VAT relief is stopped, around half of the country’s catering businesses will go bankrupt in 2023, argues Evalda Šiškauskienė, president of the Lithuanian Association of Hotels and Restaurants. “Some 50 percent of the catering sector would definitely go bankrupt, because besides the drastic increase in energy costs, we also have 55 million euros in unpaid taxes and a shrinking inflation-hit clientele,” she said during the protest.

Gediminas Balnis, the owner of Amber Food, one of the largest restaurant and café groups in Lithuania that operates 65 restaurants with 1,200 employees, says the group may go bankrupt unless the VAT relief is extended. “Apart from electricity, the costs of raw materials alone have risen by 30 percent this year, which is why we have raised our prices by 15 percent. So we are already lagging behind, and then the VAT and the increase in the minimum wage from the New Year are the last nails in our coffin.”

Šiškauskienė noted that 81 catering companies went bankrupt over the first six months of this year, which is more than in 2020-2021. There are currently more than 7,000 restaurants and cafés in Lithuania, employing more than 37,000 people, and another 14,000 work in hotels, according to the association.

Prime Minister Ingrida Šimonytė said the reduced 9-percent VAT rate for catering establishments would expire at the end of the year, stressing that this was the agreement and it must be respected. The standard VAT rate in Lithuania is 21 percent.