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Sales
tax on restaurants and cafes in France will fall to 5.5 percent from
19.6 percent on July 1, the government said recently, after the
industry promised to pass on the price cuts and go on a hiring spree.
Successive French governments
have campaigned for seven years to lower value-added tax on dining
out, arguing that the existing rate was too punitive in a country
that prides itself on its culinary heritage.
President Nicolas Sarkozy finally
got the green light from Brussels last month to slash VAT as part of
a broader stimulus package to tackle the global economic crisis.
"The reduction in VAT is
going to let France ... conserve and improve its culinary reputation,"
Economy Minister Christine Lagarde told reporters.
She added that the cut would cost
the state 3 billion euros a year in lost revenues, but that this
would be partially offset by the expected increase in restaurant
business and the promised boost to employment.
To secure the low VAT rate, trade
bodies said their members would hire 40,000 workers, including 20,000
young apprentices, over the next two years and reduce the price of
many items by 11.8 percent, including a cup of coffee.
The reduction will not apply to
alcohol sales in order not to encourage heavy drinking, the
government said.
The French media has questioned
whether restaurants will actually pass on the price cut to customers,
but the government is hoping that competition will force owners to comply.
The economy ministry says there
are 180,000 restaurants and cafes in France and 80,000 canteens,
employing some 680,000 people, making it one of the biggest employers
in the country.
The VAT cut is timed to coincide
with the start of the high summer season in the world's top tourist
destination, where the promise of good food and drink is often part
of the allure.
Diners will now be able to enjoy
a full meal with a 5.5 percent VAT rate.
Former French President Jacques
Chirac made cutting VAT for restaurants an election campaign pledge
in 2002 and although he won the vote he was unable to honour the
promise because such moves had to be approved by all EU member states.
Neighbouring Germany in
particular refused to endorse the move. It feared it would lose out
in cross-border trade to French restaurants and was reluctant to
match the proposed cuts because of the budget ramifications.
Last month's deal in Brussels
allowed countries to lower VAT on a broad assortment of services,
including restaurants, but not every country is expected to take
advantage of the change.
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