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French May Get One-Year Tax 'Holiday'

by Ulrika Lomas, Tax-News.com, Brussels

20 December 2006


French taxpayers may get a one year tax 'holiday' in 2008 if the government goes ahead with a proposal to introduce a pay-as-you-earn tax system in 2009.

Finance Minister Thierry Breton told French business daily Les Echos that the government is "technically ready" to change over to a PAYE system, and plans to hold a consultation next year to ascertain precisely what form this should take.

A report on the proposal by independent experts will be ready by early March, he added.

Unlike most of its EU counterparts, France requires its citizens to declare their annual income on a tax return in the Spring following the year in question, allowing the French ample scope to minimise their tax bills. The government has long thought about switching to a PAYE system, but has stopped short because the transition year to the switch over would mean taxpayers paying double the amount of tax in one year. However, according to Breton, the government has decided to get around this problem by simply waiving income tax in 2008.

Breton claimed that this would achieve a win-win scenario for both taxpayer and government, as more tax will be collected in 2009 under the PAYE system.

The proposal comes amid a growing debate about tax, particularly wealth taxes, in the run-up to the national elections. It has been greeted with much scepticism from some quarters, with Francois Hollande, leader of the opposition socialists, telling the Le Monde newspaper that the idea of a one-year tax holiday is a "pure electoral extravagance". The Socialists plan to roll back all tax cuts for top earners, and will remove the 60% tax cap for the wealthiest taxpayers.

Nonetheless, economists have said that the proposal will have little impact on the public finances, since taxpayers will still pay tax on income earned during 2007 in 2008, before the switchover to the new system in 2009.


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