French Vat Raised

France has announced today plans to increase its standard VAT rate from 19.6% to 20%.  In addition, the 7% reduced rate, relating to restaurants, construction, and ebooks, will rise to 10%. The 5.5% VAT rate, which applies to food, hotels and entertaining will fall to 5%.  The measures will help fund a limited range of industry investment credits.

The implementation date will be 1 January 2014.

The measures have been announced in response to the publication of the Louis Gallois report on French competitiveness.  This was set-up by the new President, M. Hollande, at the start of this summer.  The primary recommendation of this report, published on 5 November, was a large cut in payroll taxes, funded by a rise in VAT.  This measure was proposed to give a “competitiveness shock” to the French economy which has been stalled over the past few years – although it did not go into recession.  France’s share of the EU export market has fallen from 17% to 13% in under ten years, and it continues to fall behind Germany’s strong performance.  The country suffered a credit downgrade to its much-prized AAA rating by Standard & Poor’s.

The last French President, Nicolas Sarkozy, had put forward a French VAT rise to 21.2%, but this was scrapped following his defeat in this summer’s elections.