France's Restaurant Tax Drops Along with Prices


The tax on restaurant meals in France is finally dropping on Wednesday, but not many restaurant and cafe owners, already hit hard by changing social habits and a smoking ban, think the reduction will make a big difference to their businesses, the New York Times reports.

Restaurants, bars and cafes have been suffering, especially the smaller bar-cafes, which are continuing to close. In 1960, France had 200,000 cafes, according to the National Federation of Cafes, Brasseries and Discothèques. Now there are 38,600, with more than 2,000 closing last year alone.

Beginning Wednesday, after years of pleas from French presidents, the European Union will allow member states to drop the value-added tax on restaurant meals to 5.5 percent from 19.6 percent. The former is the rate that governs sandwich shops and fast-food restaurants.

Restaurant owners complained that they were being discriminated against and that they were losing ever more business to fast-food shops and sandwich places. Unions complained that salaries were too low and that no one was hiring.

The drop in taxes is expected to cost the French budget about $3.3 billion. But that, in turn, is supposed to create 40,000 new restaurant jobs—half of them for younger people—by 2011.

Lowering prices is not obligatory, and there are strict rules to follow if owners display the officially approved language that "the VAT is dropping, and prices too." Still, such signs are common in restaurant windows, indicating that owners have agreed to drop their prices on seven of 10 targeted categories, including an entree, a dessert and coffee—but not including alcohol, on which taxes (and profits) remain unchanged. Both new and old prices are supposed to be displayed.

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