France’s VAT 2014 rise was too low?

Thu 5th Jun 2014

The January 2014 increase in French VAT from 19.6% to 20% now look too low following the issuance of latest forecast government revenues.

€14bn undershoot on tax revenues on stagnant economy

The French Court of Auditors has last week estimated that rises in VAT and other taxes have only raised €16bn in comparison to the projected €30bn for 2013.

The huge hole in the anticipated revenues is largely down to the flat lining economy. Whilst Germany has been able to shrug off the worst of the global economic crisis, France has hovered around recession and near-zero growth for a number of years.

The socialist French VAT rise replaced plans by the previous government of President Sarkozy to raise VAT to 21.2%, a 1.6% increase. This level of hike would have been consistent with other increases including Spain raising VAT to 21% in 2012, Netherlands increasing VAT to 21% and the UK hiking its VAT rate to 20% in 2011.

Whilst the standard VAT rate in France was only increased marginally, the reduced VAT rate of 7% was scrapped altogether with many goods moved to 10% reduced VAT rate.