Value Added Tax (VAT) in France

June 29, 2010VATby EconomyWatch


The system of value added tax was formulated by a French economist in the year 1954. The version of VAT that is used in France is called taxe sur la valeur ajoutee or TVA.

It was put into effect for the first time on April 10, 1954 by Maurice Laure, the then joint director of tax authority of France. The value added tax system has been a great success in France since the very beginning. In the later years, VAT was imposed on all other business activities in the French economy. At present, the value added tax contributes substantial share of the state finance in France. The revenues collected from VAT make up 45% of the French state revenues.

More on VAT in French Economy

In France, the value added tax is imposed on all types of general consumption. VAT is popular for two reasons. The first reason is that it is imposed at each stage of value addition. Unlike sales tax, there is no scope of cascading in the value added tax.

The VAT system is also helpful in avoiding the incidence of double taxation. Another major advantage of value added tax is that under this system all traders are dealt equally. It also involves minimum distortionary effects on economic activities.
Current Issues on Value Added Tax in France

The standard rate of value added tax in France is 19.6 percent; while the reduced rate being 5.5 percent or 2.1 percent. The President of France, Nicolas Sarkozy, is hopeful about raising the issue of VAT rate cut at the upcoming meeting of the European Council. The demand of France to cut the value added tax rate allover in Europe aims to check the hike in fuel prices in the global market. The French president has also put stress on the fact that the call for cut in VAT on fuel needs to be strictly European.

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