What is VAT?

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L'ANTISECHE - Politicians are looking to revive consumption.  The Republicans propose a reduction in VAT.  But what does VAT consist of?  Every day, the Antisèche du JDD answers a question that was worth asking, to understand everything in the news.


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L’ANTISECHE – Politicians are looking to revive consumption. The Republicans propose a reduction in VAT. But what does VAT consist of? Every day, the Antisèche du JDD answers a question that was worth asking, to understand everything in the news.


Value added tax (VAT) was definitively implemented in 1967 after several years of trial and error. Contrary to what the name suggests, it is not a tax. It is a tax: a compulsory payment with no counterpart. It is not allocated to a particular public expenditure and is used to finance the general interest of the State or local communities. And it is an indirect tax: it is not collected by the State, but by companies. It is added to the actual price (the price excluding tax) of a product or service. The seller must then repay the amount to the State. Thanks to a system of deductions between professionals, only the final consumer pays VAT.

There are different rates: the “normal rate” at 20%; the “intermediate rate” at 10%; the “reduced rate” at 5.5% (food products, renovation work, hygienic protection, etc.); and finally a super reduced rate of 2.1%.

Local tax reform will lower VAT revenues

It is the tax whose yield is the most important for the State. The 2021 finance bill provided for 89 billion euros in return, down 22.4 billion euros compared to the previous year. For the first time, revenues would drop below the symbolic bar of 100 billion euros.

Read also – Consumption: why Republicans still defend a temporary reduction in VAT

But this time, the pandemic should not be blamed. This is a consequence of the reform on local taxes: the abolition of the housing tax and the reduction of certain corporate taxes. The State had undertaken to compensate the losses with the local communities, it will return 20% of these receipts related to the VAT.

This year, lowering VAT as a measure to boost growth has returned to the public debate. At the height of the crisis, Germany lowered the tax from 19% to 16% while the UK targeted the catering and tourism sectors, lowering VAT from 20% to 5%.

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