PARIS—Dining out and staying in a hotel in France will become more expensive from the end of next year after the government announced plans Tuesday to hike VAT and hinted at an even bigger increase.
The move to increase the rate of value added tax (VAT) charged on restaurant food and hotel accommodation from seven to 10 percent was dubbed “brutal” by the trade with representative bodies warning it will cost tens of thousands of jobs.
“We’ve been slapped full in the face,” said Roland Heguy, the chairman of the UMIH, France’s biggest restaurant trade body.
Under plans designed to boost the country’s competitiveness, the Socialist administration announced 20 billion euros of tax breaks for businesses that will be partly financed by increases in VAT from Jan. 1, 2014.
The standard rate of VAT, which is applied to alcoholic drinks sold in bars, cafes and restaurants, is also going up: from 19.6 to 20 percent.
Restaurateurs and hoteliers, who have benefited from a reduced rate on food and accommodation since 2009, will have to decide whether to pass the increases on to consumers or try and absorb the costs at the expense of their margins.
“It’s going to be really hard on restaurateurs,” said Jerome Falourd, the manager of the Louis D’Or bistro in Paris’s second arrondissement.
“People will be paying more attention to what they’re paying. We might have to revise prices. We’ll see.”
Trade bodies calculate that every percentage point added to VAT destroys 10,000 jobs in the sector and they have been alarmed by signs the government is planning to reapply the standard rate of VAT to hotel rooms and restaurant food – as is common in most of the European Union.
“That has not been ruled out,” admitted a finance ministry spokesman, adding that a decision on the issue would be made by the middle of this month.
Even before the announcement of the VAT increases, French beer drinkers were up in arms about a sharp increase in duty levied on their favourite tipple.
The increase, announced last month, has added about 5 euro cents to the price of the average “demi” (half-pint) in Paris bars and is now the subject of a petition that has been signed by a string of leading chefs, writers and actors.
“It is the very fabric of the French cafe that will feel the impact of this and with it, a whole way of living,” the petition warns.