Restaurant services are one of the most demanded tourism products with high competition in terms of price and quality. However, the high incidence of labor taxes and value added tax directly impacts the final price of goods, forcing restaurants to operate in a shadow economy to keep their prices lower. The aim of the research is to assess how value added tax incidence is related to labor costs, specifically the impact of value added tax on restaurants, as one of the examples of a labor-intensive industry. The research concludes, that value added tax has a more negative impact on labor-intensive companies, because in-put value added tax (from purchased goods and services) is deducted proportionately less, as it is not charged and, therefore, deductible from labor costs. As a result, restaurants have a higher value added tax incidence than other less labor-intensive industries. The high value added tax incidence stimulates tax non-compliance and overall loss to the national economy. The research suggests that, in order to minimize the negative impact of value added tax incidence, a reduced value added tax rate may be applied to the final services provided by restaurants.