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French Households Face Higher Tax Bills In 2014

by Ulrika Lomas,, Brussels

09 September 2013

As the French Finance Ministry finalizes details of its 2014 finance bill, due to be unveiled this month, it is apparent that the tax burden on households in France, and on the wealthiest individuals in particular, will continue to rise, despite the Government's pledge to stabilize taxes next year.

The French Government has already announced a raft of fiscal measures that will enter into force in France in 2014 and invariably serve to raise taxes. The most notable tax hike initiatives include plans to impose a 75 percent rate of tax, for a limited period of two years, on income in excess of EUR1m (USD1.3m). The levy is to be paid by corporations. It remains unclear, however, as to whether or not the tax will apply to 2013 or 2014 income.

From January 1, 2014, the standard rate of value-added tax (VAT) is set to rise from 19.6 percent currently to 20 percent, while the intermediate rate of VAT applicable in the restaurant and catering industry will rise from 7 percent to 10 percent. In contrast, the reduced rate of VAT currently benefiting food, gas, and electricity, will be lowered from 5.5 percent to 5 percent next year. Expected to generate in the region of EUR6.4bn, the measures will finance in part the Government's competitiveness and employment tax credit (CICE).

Furthermore, the Government aims to reduce the "family quotient" (quotient familial) income tax break ceiling next year from EUR2,000 to EUR1,500, a measure expected to yield income of around EUR1bn, and affecting an estimated 1.3 million households in France. The "family quotient" tax shelter reduces income tax using a coefficient system and is calculated by dividing the household's net taxable income into parts, with the number of parts corresponding to marital status and number of dependents.

Within the framework of its pension reform plans, the Government aims to increase employer and employee pension contributions by 0.15 percent in 2014, and by a total of 0.3 percent by 2017. Although the pension contribution rise is to be offset for companies, employees will bear the full impact of the initiative, which will be introduced in addition to plans to raise complementary retirement contributions and to subject pension supplements to taxation, for parents with three children or more.

In addition, the transfer tax imposed following the acquisition of a property is set to rise in 2014. Next year, French departments will be able to apply a maximum transfer tax of 4.5 percent, compared to 3.8 percent currently.

Finally, the Government plans to reduce existing tax breaks in France, representing a huge cost for the state estimated at EUR70.8bn in 2012. The Government intends notably to abolish the education income tax reduction currently accorded to families in France with children in secondary and higher education, yielding savings of approximately EUR445m. It also plans to introduce a new "climate energy contribution" in France, within the framework of the 2014 finance bill, and is examining the idea of aligning the taxation of diesel with taxation of petrol.

The Government has already revealed a number of measures aimed at lowering the tax burden on individuals and on enterprises. For example, its CICE tax credit will enable companies in France to recover 4 percent of their payroll costs in 2014, representing a total cost to the state of around EUR10bn. Additionally, the Government has confirmed plans to index the country's income tax scale to inflation in 2014, following a two-year freeze.

The Government has also unveiled plans to accord an exceptional 25 percent tax reduction for capital gains realized following the sale of a residential property or rights relating to that property between September 1, 2013, and December 31, 2014. From September 1, total capital gains tax exemption will be granted after a twenty-two year holding period, compared to 30 years as is currently the case.

Stressing that the Government’s aim is to stabilize the tax burden in France, one year earlier than initially planned, French Budget Minister Cazeneuve recently insisted that taxes in France will not rise by EUR6bn next year, within the framework of the 2014 finance bill, as previously indicated by the Government.

During an interview with Europe 1, Cazeneuve categorically ruled out a EUR6bn tax hike in 2014, maintaining that the rise will be "much less than EUR6bn." Refusing to be drawn on a precise amount, the Minister pointed out that the figure will be made public shortly, when the Government presents the 2014 finance bill.

TAGS: individuals | capital gains tax (CGT) | environment | Finance | tax | value added tax (VAT) | mining | energy | employees | retirement | corporation tax | environmental tax | payroll | food | education | tax rates | France | tax breaks | inflation | individual income tax | European Union (EU) | Europe

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