The French government confirmed this week that the planned French VAT rise to 20% from 19.6% will go ahead on 1 January 2014. This will include the elimination of the 7% reduced VAT rate – with goods and services moving to either the 5.5% or 10% reduced VAT rates.
The confirmation comes as the government confirmed that there is a shortfall in the projected government deficit of over €5 billion in 2013. The is particularly concerning as the European Commission has already given France a two-year extension to reducing its deficit as a proportion to GDP to 3% to conform with the terms of Euro currency membership rules.
The government has publicly requested shops and retail chains to refrain from passing on the VAT rise in 2014. This will be difficult for the retail sector to accept as they are already facing rising labour taxes and squeezed margins.
The French government has made a number of tax rise U-turns in the recent months. This included withdrawing a corporate gross profits tax, and a new tax on heavy lorries.