France increases its reduced VAT rate from 5.5% to 7% in 2012
3 January 2012 update
The scheduled rise in the French reduced VAT rate has now gone ahead, despiste reports of a delay. The one exception is on sales of books, which will remain at the old 5% rate until March 2012.
The French Prime Minister, Francois Fillon, announced in November 2011 plans to increase the reduced VAT rate from 5.5% to 7% from January 2012. Read about French VAT compliance here.
Essential foodstuffs will remain at 5.5%. Other goods, including food provided in restaurants, books, public transport and repairs to domestic dwellings and cleaning services will be liable at the new sales tax rate from 2012. The current French standard VAT rate will remain at 19.6%. The 5.5% reduced rate was originally created in 2009 to help stimulate the economy in the face of the world credit crunch.
VAT rise as part of French austerity measures
This proposal came as part of a range of austerity cuts following the latest Euro currency rescue agreement. Other measures include bringing forward to 2017 an the increase in the official retirement age from 60 to 62. The aim of this package is to reduce the current state deficit from 5.7% to a balanced budget by 2016, and help preserve France's prized AAA credit rating with the international debt markets. The French state has not run a balanced budget in over 30 years.