Could our sacrosanct value added tax or VAT be France’s best invention or at least the one that the world has copied the most? This direct tax on consumption was inaugurated in France in 1954 at the instigation of a high-ranking civil servant namds Maurice Lauré. Seen as a modern tax, as it only impacts the added value upon the sale of goods, VA was quickly successful throughout the world and in particular in Europe.
As of 1 January 2012 there are now 4 rates of VAT in France: the standard rate of 19.6% for all consumer goods and services, the most recent rate from 1 January 2012, an intermediary reduced rate of 7% for all those goods previously taxed at 5.50%, the former 5.5% reduced rate for food items  and a very reduced rate of 2 .1% for medicines.
VAT still inspires many and is often in the news as Nicolas Sarkozy announced a possible increase of the standard rate to 21.20% from 1 october 2012. A budget is expected to be presented by the government to the national assembly at the beginning of February for the adoption of this measure.
Why so much noise from a tax about which a lot has been written (or downloads made) and which nevertheless remains fairly obscure to many Frenchmen? – simply because VAT comprises the majority of the income of the State budget. More than 45% of State revenue consists of proceeds from VAT, whilst income tax makes up only 20% of all income and corporation tax only 15%.
And thus the successful series on French VAT continues, with a new episode on “social VAT”. This term may give rise to confusion, as it is not a question of social measures, i.e. measures intended to improve the lot of employees (“social” in French can refer to labour matters) or working classes. The so-called “social VAT” consists of increasing the rate of VAT such that this tax may finance social security protection and decrease social security contributions paid by companies. A large part of social security protection would thus be funded by consumers and less by companies.
But will the world, or at least Europe, show the same interest in adopting this social VAT as that shown at the outset for its big sister, the classic form of VAT? Let us not forget that in Germany, a country on everyone’s lips at the moment, the lower rate is at 7% and the standard rate at 19%. In England, rates are 5% and 20% respectively. As for Spain, there are three rates of 4, 8 and 18%, but they are not applied systematically. As such Franceis on its way to applying the average of rates applicable in other countries. This will perhaps console those in Francenostalgic for lesser rates… as long as they do not take a peek at practices of other of our neighbours, such as Switzerland, where the standard rate is 8% or further afield such as Japanwhere the standard rate is 5%, Australia10% or China17%. Currently, among developed countries, only the USAhas not adopted VAT, preferring instead its similar system of sales tax, whose rates are set by each state from 0% to 8.75%.
Here ends our brief panorama of VAT in the world. See you soon for new fiscal adventures.
Samantha Verhaeghe (email@example.com)
 This new 7% rate applies also to fast food and books. Other sectors to which it applies: products of agricultural, fishing, fish and poultry farming which have not undergone any transformation; wood for heating and waste; individual or combined feed for cattle, poultry, farmed fish, fertilisers, etc.
 Here is a list of goods and services which remain subject to the 5.5% rate: Water and non-alcoholic drinks, products intended for food except confectionery, chocolate, margarine, vegetable fats and caviar (of course!). Also equipment and services for dependent persons (disabled and elderly persons), as well as some subscriptions relating to the provision of energy (electricity, gaz, etc.), provision of meals to schools.