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Will France finally alter its income tax system?

Ben McPartland · 27 Nov 2013, 10:07

Published: 27 Nov 2013 10:07 GMT+01:00

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French Prime Minister Jean-Marc Ayrault began crucial talks this week aimed at pushing through drastic reforms of France’s tax system.

The tax system, Ayrault admitted earlier this month was “almost unreadable and very complex” which was giving the French the impression that what they were paying was not fair, he told Les Echos newspaper.

One of the key topics up for discussion is whether France should switch to the same system employed in most countries whereby income is taxed at source as opposed to the current situation where income tax is paid the following year, usually in three instalments.

A recent  Ifop public opinion poll showed that just over half of those surveyed back deducting tax at source, Reuters reported.

Change would be extremely difficult

Despite Ayrault seemingly keen on a change, that to many may seem obvious, there are also powerful groups who oppose any kind of change, citing numerous reasons why it would be a bad idea.

“The practicality of changing the way taxes are paid in France, means it would be extremely difficult to do,” French tax expert Patrick Delas, from Russell-Cooke in London tells The Local.

“It would also be extremely expensive for a government that doesn’t have any leeway in terms of budget. It will also mean much more work for businesses, who already have the complicated job of working out social security contributions.

“There will also be the people who work in the revenue offices for the government, who will fear job losses if this change is made.”

Delas also believes that many tax payers themselves would rather have the chore of filling in declarations once a year than have their employers deducting their taxes.

“Many employees will not like the fact that their companies will have access to personal information, whether they have second incomes, their household income or whether there has been a change in their personal life etc,” he said.

Although the complicated tax system is often top of the list of complaints expats have about France, Delas says there is no real disadvantage to the French system.

'Bureaucracy is the price to pay'

“France’s system is just different and it’s a way of leaving a lot of the work up to individuals. I submit income tax returns in the UK and don’t find them so easy.

“Each country has its idiosyncrasies, for example in the UK the tax year does not correspond to the calendar year. All developed countries have created sophisticated tax systems. Bureaucracy is the price to pay,” Delas added.

Ditching the current system would see an end to the annual stress of having to fill in tax declarations, as well as the issue of having to put aside a certain amount of money each year to pay the tax bill. 

Another advantage of ditching the current system, a move which would no doubt be rejoiced by many bureaucracy-phobic expats in France, is that if an employee loses their job and ends up earning less, then their taxes are automatically adjusted rather than the following year.

Any change in circumstances such as marriages or births of children can also be automatically and quickly taken into account by the tax man.

It’s not the first the time the question of changing the way taxes are paid, which was described as a “monster” by one French news site this week.

'There more cons than pros'

In 2007 a report noted the payment of taxes in “real time” will benefit the government because it will see the benefit of any changes in tax laws immediately rather than in the following year.

Story continues below…

The same report also pointed to another advantage for the government would be able to adapt more easily to economic conditions.

Certain social charges in France, such as the CSG (General Social Contribution), which as taxes by nature if not by name are already paid automatically, which naturally leads to the question: why can’t taxes also be paid the same way?

Because there’s no simple way of carrying out an overhaul, Michel Taly, a tax lawyer at the firm Arsene Taxand in Paris told The Nouvel Observateur news site.

“The major problem will arise when it comes to changing the system. Because to stop people from paying twice, it will have to sip a year. How can this be implemented without causing injustice to anyone?

“For anyone whose income is stable, there won’t be a problem, but for the others? It will be naturally be better for them if we skipped the year in which they earned the most. Smoothing things out will naturally require complex solutions.

“Overall I would say that if France passes to a system where by income is taxed at the source, the disadvantages would outweigh the advantages,” Taly said.

Do you agree? Would you be over the moon if you paid your income tax directly out of your salary? Or do you enjoy the annual tax declaration rigmarole? 

Ben McPartland (ben.mcpartland@thelocal.com)

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