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France Re-Thinks Restaurant VAT Break

by Ulrika Lomas,, Brussels

05 November 2012

Provoking outrage among restaurateurs and unions in France, the French National Assembly finance committee has recently adopted a report advocating an increase in the reduced value-added tax (VAT) rate applied in the catering industry.

In his report, Socialist deputy Thomas Thévenoud highlighted the high cost of the tax break for the state, of around EUR2.6bn (USD3.3bn) a year. Underscoring that a rise in the 7% reduced VAT rate is “inevitable”, particularly given that restaurateurs have not honoured their commitments in return for the tax shelter, Thévenoud advocated that either the 19.6% standard VAT rate apply or that an intermediate rate is introduced.

Thévenoud outlined details of his plan to ensure that quality prevails in the industry, to be achieved notably by providing support for smaller restaurants, employing fewer than 20 employees, by assisting with training and professional qualifications, and by raising standards, in terms of hygiene, disabled access and product transparency.

Introduced in France in 2009 by former French President Nicolas Sarkozy, the 5.5% VAT rate was initially accorded to the catering industry in return for lower prices and job creation.

Under the terms of the agreement (le contrat d’avenir) concluded between the government and professional organizations, restaurant owners pledged to lower the prices of at least seven products on their menu, to create 40,000 additional jobs in the sector within two years, to invest, and to negotiate a rise in wages.

The VAT rate was subsequently increased to 7% at the beginning of the year.

Unions have warned, however, that any plans to raise VAT would have dramatic consequences on both employment and on the economy. Cautioning the government against such a move, the French hotel union UMIH argued that increasing VAT would endanger almost 100,000 jobs across France. It would be an “anti-social” measure in a sector that is a key provider of employment, principally among the young, the union added.

TAGS: tax | value added tax (VAT) | employees | food | tax rates | France

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