Tax Reform in France

French President Nicholas Sarkozy has strongly been in favor of far-reaching reforms in the tax structure. As an integral part of the major Economic reforms in France, the tax reforms can make a major impact on the French economy. Although these reforms have been protested by some in France, the tax reforms have been undertaken to boost productivity and purchasing power of consumers – the major challenges the French economy is facing.
Eric Woerth, France’s budget minister also strongly supported the reforms. The tax reforms aim to bring down the level of fiscal charges. According to Mr. Woerth the objective of the reforms was to bring down public spending and increase revenues. The French Government has proposed to reduce contribution rates and raise VAT (Value Added Tax).

Some of the significant features of the tax reforms are:
Raising the inheritance tax (IHT) threshold: This will ensure that 95% of property owners would now be exempted and only the richest property owners would be paying inheritance tax.
Introduce tax free overtime: This would, on the one hand, help to improve productivity; while on the other hand, it would give relief to recruiters facing costly labor regulations.
Extend tax relief measures to corporates: This would attract foreign investors to open up operations in France.
Some of the beneficiaries of the reforms would be the housing sector, investors and international business and the middle class youth.
Housing sector
Property prices are expected to rise with an increase in demand for housing property. This is due to the introduction of tax relief on mortgages. This would however be limited to French citizens only. What this means is that French people buying a housing property on mortgage would receive tax cuts. This is a double benefit for the buyers – tax savings as well as property ownership. Although this is a very common practice in several economies, the French Economy hadn’t adopted such a system before.
Investors and International Business
High cost of labor in France had been a constraint to investors and international business houses. The tax reforms would undoubtedly be a welcome opportunity for them. Initiatives like tax free overtime and tax relief measures to corporates would enable investors to operate at lower costs.
Middle class youth
Unemployment has remained one of the prime concern areas of the French Economy. With the possibilities of increased investment, the job market in France, it seems, will open up. Moreover exemption from inheritance tax would mean that French youth would be inheriting much higher value of property from their parents than they earlier were. Also a large number of middle class French youth will get the opportunity to own property due to tax benefits on mortgages.

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Last Updated on : 26th June 2013

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