IMPLEMENTATION OF GST IN FRANCE: A CASE STUDY

ABSTRACT

In today’s scenario we pay various taxes i.e. direct and indirect taxes, which are felt as burden
on us and due to these taxes the corruption is increasing. so, to overcome from all these taxation
system the central government has decided to make one tax system i.e. goods and services tax
(GST). GST is one of the most critical tax reforms in india which has been long awaiting
decision. it is a comprehensive tax system that will subsume all indirect taxes of state and
central governments and whole economy into seamless nation in national market. it is expected
to remove the burden of existing indirect tax system and play an important role in growth of
india. GST includes all indirect taxes which will help in growth of economy and proves to be
more beneficial than the existing tax system. GST will also help to accelerate the overall gross
domestic product (GDP) of the country. GST is now accepted all over the world and countries
are using it for sales tax system. this paper will help to show that, what will be the impact of
GST after its implementation, difference between present indirect taxes and GST and what will
be the benefits and challenges of GST after implementation.

Keywords: central, state, dual, GST, indirect tax, direct tax, GDP, implementation.

INTRODUCTION:

The GST as a Value included Tax (VAT) is proposed to be a complete backhanded assessment
require on produce, deal and utilization of merchandise and in addition administrations at the
national level. In spite of the fact that France is known for its adjustment in government it has
a standard far reaching products and ventures charge. Out of 165 countries which have GST
France is the pioneer of executing an extensive assessment framework. France is known for its
tourism, nourishment and mold, in such circumstance standard aberrant assessment i.e. GST
can be an extraordinary add to its national income.

AIM

To trace out the origin of GST in France

To evaluate the VAT framework in France

To analyse the impact of GST on French Economy

MATERIALS

The researcher has referred secondary sources namely books, journals, research articles,
unpublished theses, newspapers and e- sources for the purpose of writing this paper.

ORIGIN

Goods and Services Tax also known as the Value Added Tax (VAT) or Harmonized Sales Tax
(HST) was first devised by a German economist during the 18th century.He envisioned a sales
tax on goods that did not affect the cost of manufacture or distribution but was collected on the
final price charged to the consumer. The numbers of transactions are immaterial and the tax is
at a fixed percentage of the final price. The tax was finally adopted by France in 1954. Maurice
Lauré, Joint Director of the French Tax Authority, the Direction générale des impôts, was the
first to introduce VAT on April 10, 1954. Initially directed at large businesses, it was extended
over time to include all business sectors.

BACKGROUND

The Indian indirect tax regime is characterized by multiple levies, such as excise duty, Customs
duty, VAT, Central sales tax, service tax, and including local levies, such as octroi and entry
tax. Historically, none of these taxes were creditable against one another, barring a part of the
Customs duty and excise; over the last few years, service tax has also been brought into the
creditable basket. The excise duties, Customs duties and service tax belong to one basket of
creditable taxes, VAT, Central sales tax and octroi belong to another basket of entirely non-
creditable taxes. The Central Government to levy certain taxes, and the State Government to
levy certain other taxes-this distribution of power was clear and unequivocal. As a result, over
the last six decades, both the Central and the State Governments have steadfastly worked at
refining and expanding their respective tax regimes, but as the saying goes, the twain never
met. In fact, until the introduction of VAT recently, even a single regime such as sales tax often
entailed multiple levies, since sales tax levied across different States was largely non-
creditable.

AN INTEGRATED REGIME – BIRTH OF AN IDEA

Introduction of GST would result in abolition of multiple types of taxes on goods and services.
  Reduces effective rates of tax to one or two floor rates.

 Reduces compliance cost and increases voluntary compliance.

 Removes cascading effect of taxation and removes distortion in the economy.

Enhances manufacturing and distribution efficiency, reduces cost of production of
goods and services, increases demand and production of goods and services.

 As it is neutral to business processes, business models, organization structure,

geographic location and product substitutes, it will promote economic efficiency and
sustainable long-term economic growth.

 Will give competitive edge in international market for goods and services produced in
India, leading to increased exports.

 Reduces litigation, harassment and corruption.

 Will result in widening tax base and increased revenue to the Centre and State.

 Reduces administrative cost for the Government.

IMPACT OF GST:

The most significant impact of the introduction of GST will be the removal of the cascading
effect of the various taxes, since in an ideal GST scenario; all indirect taxes will be creditable
against one another. The overall impact of taxes on businesses is reduced. Besides, the artificial
(tax) barriers to trade that currently exist should be fully removed. All of these, coupled with
the relative clarity that a GST regime offers, should result in the reduction or rationalization of
prices. Another equally significant offshoot of this regime is streamlining of the administration
and collection of the indirect levies, since GST will attempt to tax the value added at each stage
of the supply chain. The government revenue is not boosted but brings to book many of the
defaulters, and hence results in the creation of a robust tax regime.

HISTORY:

With the presentation of GST in 1954, France turned into the primary nation ever to present
GST. Its presentation (as an esteem included duty) was required on the grounds that high deals
duties and levies energize bamboozling and smuggling.1 France acquainted VAT with supplant
the expense on generation. At first coordinated everywhere organizations, it was stretched out
after some time to incorporate all business sectors.

in 1968 and was then embraced by the European Community - and by different states situated
outside the EC. In France, it is the most imperative wellspring of state back, representing over
half of state revenues.2 The fundamental reason for executing the GST administration in
France was to stop tax avoidance which was pervasive in the nation because of high duty rates.

VAT FRAMEWORK IN FRANCE:

While France takes after the EU leads on VAT consistence, it is sans still to set its own
particular standard (upper) VAT rate. The main stipulation is that it is over 15%. Providers of
merchandise or administrations VAT enrolled in France must charge the suitable VAT rate,
and gather the expense for ahead installment to the French assessment specialists through a
VAT filling.

Rate Sort: Which products or administrations

20% Standard : All other assessable products and enterprises.

10% Decreased : A few foodstuffs; some pharmaceutical items; residential traveler transport;
intra-group and universal street (a few special cases) and inland conduits transport; admission
to event congregation (with social angle); pay/satellite TV; some redesign and repairs of private
residences; some cleaning in private family units; some farming supplies; inn accomodation;
eateries (barring mixed refreshments); some local waste accumulation; certain local care
administrations; kindling; take away sustenance; bars, bistros and dance club; cut blooms and
plants for brightening use.

5.5% Lessened : A few foodstuffs; water supplies, medicinal gear for crippled people; books
(barring those with obscene or fierce substance); ebooks; admission to certain social occasions;
journalists and writers; some social lodging; admission to sports occasions; some household
mind administrations; cut blossoms and plants for nourishment creation.

2.1% Diminished: Some pharmaceutical items; a few daily papers and periodicals; TV permit.
0% Zero : Intra-people group and global transport (barring street and inland conduits).

France has received a use based combination procedure while in the meantime diminishing the
taxation rate on work to support aggressiveness. As a supplement to this technique to reignite
development and get control over the shortfall, the outline of the duty framework could be
additionally made strides. In this unique situation, the genuinely across the board use of
diminished rates and exceptions in Value included tax assessment (VAT) is adding to the
multifaceted nature of the expense framework and weighing on its proficiency. VAT receipts
in France were beneath the EU normal in 2014 as a level of aggregate expense revenue(14.5%;
EU normal of 17.5%). Since VAT is less demanding to control and moderately less unsafe to
development contrasted and different types of tax collection, expanding incomes from VAT
could be critical in mitigating the taxation rate on work, which remains generally high in France
notwithstanding the current approach activities to decrease it. In correlation with other Member
States, the broad utilization of lessened rates and the utilization of exclusions reduce the income
productivity of the VAT framework. The income inescapable from diminished VAT rates and
exceptions considered as assessment uses by the French experts convey a generous budgetary
cost of around 1% of GDP.

France has an unpredictable VAT rate structure, applying four distinct rates. EU Member States
are obliged to apply the regular European VAT framework, which was set up in 1967. The
VAT Directive sets out general tenets surrounding Member States flexibility to set VAT rates.
These tenets were proposed to ensure, most importantly, the lack of bias, straightforwardness
and workability of the VAT framework. As a default administer – a standard VAT rate – at
least 15%-is connected to every assessable supply of products and ventures. It allows
additionally two diminished rates, set at least 5%, which are bound to specific products and
enterprises recorded in the VAT Directive. Likewise various diminished rates, including lower
than 5%, are permitted in certain Member States as indicated by 'halt criticisms. This
framework has encountered a few noteworthy changes, bringing about various VAT rate
structures crosswise over Member States

With a specific end goal to maintain a strategic distance from that strategy proposals empower
cross-outskirt shopping, it is vital to consider additionally the VAT structure in other associate
Member States, particularly in neighboring nations; France applies all things considered lower
VAT rates for all classifications of products in contrast with neighboring companion nations .
The 10% rate is connected to around 15% of the items and administrations in the value record,
with just about 20% of item being exhausted at the decreased rate of 5% and a more constrained
measure of items at the super lessened rate of 2.1%. A diminished rate of 5.5% is especially
low, given that nations with a two-rate structure, applying a standard rate a d one lessened rate,
frequently apply a decreased rate differing in the vicinity of 10 and 12%. Also, just five
Member States (Spain, France, Ireland, Italy and Luxembourg) apply a super decreased rate.
At the season of the presentation of the Single Market in 1992, there was a political
responsibility regarding eliminate these upper-lessened rates at a four years times skyline
however this has not emerged. For specific items and administrations France is an exemption
in applying decreased rates. Certain items or administrations, for example, sustenance, lodgings
and transport are burdened at diminished rates in France and for all intents and purposes
wherever in Europe. For instance, Denmark, Bulgaria, Slovakia, Lithuania and Estonia are the
main Member States to assess all sustenance at the standard rate. In any case, France is one of
the main nations to assess non-mixed refreshments, TV licenses and pay TV at lessened VAT
rates. Likewise, in different nations household mind is regularly exhausted at the standard rate,
however not so in France.

France makes utilization of discretionary exceptions accommodated in the VAT Directive and
applies certain required exclusions in general society enthusiasm without limitations (e.g.
certain paramedical administrations). The VAT Directive (2006/112/EC) requires EU Member
States to excluded certain products and enterprises from VAT ('mandatory exceptions') (e.g.,
postal administrations, restorative and certain paramedical administrations). For the
motivations behind guaranteeing a right and clear use of those exclusions and keeping any
conceivable avoidance, Member States may set down conditions under which mandatory
exceptions are connected. The exclusion for certain different merchandise and enterprises is
('discretionary exceptions') under the VAT Directive. France applies those uncommon

criticisms by exempting certain administrations, for example, the supply of administrations by

creators, craftsmen, legal counselors (up to EUR 42.000 of yearly turnover) and other liberal
callings. The abnormal state of open use and the use of the required exclusions in general
society enthusiasm without limitations infer that the exception for open great outcomes in a
significantly more grounded misfortune in income than all things considered in the EU.

VAT FRAMEWORK IN THE EUROPEAN UNION:

The European Economic Community (EEC) received VAT all through Europe, supplanting
falling multi-arrange turnover charge. VAT was executed because of the simplicity with which
it dealt with cross-outskirt exchanges and encouraged the advancement of a typical market.

The VAT Directive sets the system for VAT structure in the EU, however leaves national
governments with the flexibility to set the number and level of rates they pick. They may utilize
arrangements of VAT Directives in national enactment, subject to the accompanying essential
guidelines:

1. Merchandise or administrations provided over the span of business by an assessable

individual inside the EU are liable to VAT at a standard rate not lower than 15%, unless
particularly absolved.

2. EU part states can pick to apply maybe a couple lessened rates of at least 5%.

3. Part states may subject certain merchandise or administrations recorded in Annex III of the
VAT Directive, for example, sustenance, water, pharmaceuticals, books, admission to
social/entertainment/brandishing occasions, social administrations, restorative administrations
and gear, horticultural contributions, to bring down rates, including zero rates, which were set
up on Jan. 1, 1991, however they can't present any new rate under 5%.

4. Merchandise and ventures in people in general intrigue, for example, therapeutic care,
administrations connected to welfare and government managed savings work by open elements
or magnanimous associations, certain instruction and social administrations, particular
monetary and protection benefits, certain provisions of land and structures, fare of products,
and shipments of intra-EU supplies are absolved from VAT.

IMPACT OF GST ON FRENCH ECONOMY:

Colbert filled in as the fund serve for King Louis XIV of France for right around two decades,
from 1665 to 1683, and enormously enhanced the province of French accounts. France was
practically bankrupt when he assumed control. His tax collection approaches additionally
enhanced the province of French assembling. His technique was issuing proclamations. There
was none of the majority rules system babble in those days. What Colbert needed, Colbert took.
His most prominent accomplishment was products and enterprises impose (GST). Irritated that
diverse regions in France forced distinctive expenses and that he could do nothing about it, he
pretty much adjusted them. One France, one assessment, one market. Income arrangement -
rates and scope - was controlled by a Royal Council.

At the point when Hollande turned into France's leader in 2012, disregarding an as of now
inadequately performing French economy, he kept his race time guarantee to raise charges.
New or higher duties were forced on bank benefits and enterprises as a rule. People were
additionally subject to impose increments, including higher expenses on legacies, profits,
rewards, and investment opportunities. The Value Added Tax (France's rendition of the GST)
was expanded to 20 for each penny; the best negligible assessment rate was expanded to 75 for
every penny from 48 for every cent.

Examination between GST in India and France: we have a double framework i.e. State and
focal levels.

CONCLUSION:

Despite the fact that if a country is less expense consistent state by methods for standard
thorough duty an adjusted relationship can be laid amongst immediate and round about we
have a double framework i.e. State and focal levels. assessment. In spite of the fact that India
and France have generally shifting financial culture, India can receive few of its monetary
strategies identifying with charge structure and pieces. Economy is only a ceaseless
experimentation process , so India can attempt charge pieces of France to achieve improvement
in monetary status.

SUGGESTIONS

The members of the GST taskforce should have representation from those with relevant
expertise (such as chartered accountants, an information technology specialist, industry bodies,
including Micro, Small and Medium Enterprises (MSME) representatives and a fiscal
economist. The taskforce should focus on:
Overseeing the compilation of a registry of all GST taxpayers, with a view to ensuring that as
many as possible these taxpayers are filing their tax returns. This should be undertaken on the
basis of empirically quantifiable numbers. The target proportion of potential GST taxpayers
who actually file returns should be benchmarked; and so should the GST revenue collected as
a proportion of the potential GST revenue base.
Monitoring compliance costs of GST, particularly for the MSMEs. As these costs vary
inversely with turnover, preserving MSME profitability and competitiveness requires specific
attention to their GST compliance costs.

REFERENCE:

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service-tax-gst-in-france/

2http://tra.org/wp-content/uploads/2016/02/France-VAT-Guidebook.pdf

3https://www.makaan.com/iq/news-views/lessons-from-outside-as-india-readies-itself-to-
implement-gst

4http://www.vatlive.com/country-guides/europe/france/french-vat-compliance-and-rates/

5 Athena Kalyva, Hans Naudts, Savina Prince, Economic and Financial Affairs, Economic
Brief 15, ISBN 978-92-79-54483-5 (online)

6https://www.avalara.com/in/learn/whitepapers/gst-india-beyond/

7http://www.rediff.com/business/column/tax-spend-and-be-doomed-a-lesson-from-
france/20160825.htm

8https://www.fraserinstitute.org/article/france%E2%80%99s-failed-tax-and-spend-
experiment ;

9https://www.quora.com/Why-is-GST-good-for-France-but-not-for-India