French Govt: VAT On Carbon Tax Will Be Reimbursed

by Ulrika Lomas, Tax-News.com, Brussels

13 October 2009

In a recent announcement, the French government has confirmed that all income derived from the new carbon tax will be repaid in full to individuals – including revenue from value added tax (VAT).

Refuting claims from the French consumers association UFC-Que Choisir that it intends to keep income from VAT imposed on the carbon tax, estimated at around EUR500m, the government has reiterated that the amount of compensation paid out to individual households will be exactly equal to the amount of tax levied, that is EUR2.65bn.

According to a joint announcement issued by the French Ministries for Ecology and Finance, the carbon tax is set to generate in the region of EUR4.1bn, of which approximately EUR2.2bn will be directly paid by individual taxpayers. Taking into account VAT (which will be levied at a rate of 19.6%), this figure will rise to EUR2.65bn.

The government’s recent announcement follows a firm pledge issued at the very outset by President Sarkozy, that individuals will be compensated in full for the introduction of the carbon tax, either in the form of a tax credit or a direct payment.

Plans to introduce a carbon tax in France, or "contribution climat-énergie," form part of the government’s drive to combat climate change. Championed by President Nicolas Sarkozy, the new carbon tax will tax all sources of carbon dioxide emissions, including the use of fossil fuels, such as petrol, gas and coal.

Targeting priority sectors, such as transport, housing and agriculture, the tax is designed to reduce the country’s emissions of fossil fuels, and to encourage consumers to opt for more energy-efficient and environmentally friendly products.

Highly controversial, however, the tax is opposed by the Left, who believe that many taxpayers, notably those in rural locations, will be penalized as a result.

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