A blog about taxes, that should go down well, I thought, and attract a lot of fascinated readers. Let’s have a go at France’s infamous Taxe Professionnelle. Note that this tax is widely disliked by all involved, including all French businesses and, it seems, M Sarkozy – it’s not just me being grumpy.
I’ve talked before of ‘taxe professionnelle’ as one of the least popular and least fair taxes imposed on businesses in France. Well, it seems possible (if not yet certain) that the tax might be cancelled from 2010 onwards. This is very important news for companies and businesses operating in France.
First a broad overview of how taxe professionnelle works. Basically, for most companies the tax is charged at a fixed rate of 16% of the value of the assets used in the business. This, as you can imagine, might be an extremely large charge.
For smaller professional type businesses (accountants, web designers etc) there are few assets involved – so the charge is made according to income. Note, the charge is based on income (not profit) and is at a rate of 6%. So if a company has income of 50,000 euros and costs of 25,000 euros (all before tax) the charge is 3,000 euros. Equivalent to a 12% charge on the net profit and payable in addition to normal company taxes etc.
The most troubling thing about the taxe professionnelle is that most of the proceeds are used to pay for the thousands of mayors and town halls, communes, cantons, sous-prefectures and prefectures of France – that is, the local government officials that are found in large numbers in every part of France.
It is likely that there are inefficiencies in the very costly commune / local maire system that could be substantially reduced by centralising many of the functions carried out by the local communes. The previous sentence is a dramatic understatement of reality, for reasons of politeness.
Imagine every village in France having a town hall with a handful of paid staff. Now imagine the cluster of small communes that surround each village (about eight in the case of our own local village) – each of these communes also has a town hall, a mayor and an assistant etc. There are 36,500 communes in France altogether covering an average of about six square miles each. It’s outside the scope of this post but I think I’m right in saying that the vast majority of tasks handled by the mairies could be centralised, with great savings in staff and building costs, and with very little effort.
The communes of France also receive funds from local property taxes etc (taxe d’habitation, taxe fonciere). One commune near us has so much money that it has bought a house near the seaside for members of the commune to use for holidays, which is nice for them. This is not common, although anecdotal tales of wastage and spending on unnecessary projects in ‘rich communes’ are often heard.
Anyway, the big news this week is that the Government are thinking about abolishing the tax from 2010, because it acts as a major disincentive to companies starting up in France or to French companies investing in their businesses. This possible cancellation follows from Mr Sarkozy’s ‘speech to the nation’ last week, and will be an extremely popular decision if approved.
Just only little problem – the talk about cancelling the tax seems to refer to the taxe professionelle that is based on asset values, which presumably is the majority of those paying the tax. I haven’t yet heard mention of the same cancellation for the tax when applied to small professional businesses (the 6% of income I mentioned above). Why does this matter?
Well as you might have guessed, we ourselves are a small professional business subject to the 6% tax…
My own fear with the scraping of the tax is how will the gap be made up?
Reckon it will be easier to tax locals more than get rid of fonctionnaires.
Craig, I’m sure you’re right – but as someone who pays the taxe professionnelle I’d sooner see it spread across all residents of the commune as an increase in taxe d’habitation etc. rather than all falling on the few of us who pay it (farmers, I seem to recall, are usually exempt from paying)
Meanwhile a couple of nights ago on the news there was a feature about a commune somewhere in France where all the residents were protesting outside the mairie that the mayor should resign, because he kept putting the property taxes up. That is my kind of demonstration, and one I will happily join in due course!