June 30, 2009 / 1:54 PM / 8 years ago

French restaurants prepare for VAT cut

PARIS (Reuters) - French restaurants prepared to cut prices on meals and soft drinks ahead of a new lower sales tax rate that comes into effect on Wednesday after years of lobbying European partners by successive governments.

Value added tax on restaurants and cafes will fall to 5.5 percent from July 1 from 19.6 percent previously after a deal hammered out with European Union partners in March following a 7 year-long campaign by Paris.

As part of the deal, restaurant trade bodies signed up to a so-called "contract for the future" under which they agreed to step up hiring and create 40,000 new jobs over the next two years including 20,000 apprentice positions.

They also pledged to cut prices of many items from a cup of coffee to entrees, "plats du jours" (daily specials), desserts and soft drinks, by 11.8 percent.

"This contract is based on confidence and the responsibility that restaurants are assuming in price, employment and the quality of service," Economy Minister Christine Lagarde told reporters on Tuesday.

The lower VAT rate comes as a welcome boost to the restaurant sector, which has complained of falling sales and the impact of a ban on smoking that came into effect at the beginning of last year.

"We've already seen a strong rise in sales," said Barbara Cohen, owner of "La Grange aux Dimes," a restaurant in Wissous, south of Paris where she cut prices earlier this month ahead of the official start of the new rates.

"We've been seeing clients who would come four or five times a month now coming seven times a month. It's really impressive."

LONG BATTLE

France's rich culinary tradition has made the issue of restaurant VAT particularly symbolic but the sector is also one of the country's big employers.

According to government figures, France has a total of some 180,000 restaurants and cafes of all types and more than 80,000 canteens and employs some 680,000 people.

"This is a unique opportunity for the sector to play its part as an industrial jobs motor," said Dominique Giraudier, head of Groupe Flo, one of France's biggest restaurant operators, which employs more than 5,200 people.

Lagarde said government inspectors would be monitoring price announcements to ensure that restaurants which advertised reduced prices really offered them but she said people would naturally avoid restaurants that did not pass on lower costs.

"The customer will be the best judge," she said. "The state will be vigilant but customers will be the ones that make the difference."

Former French President Jacques Chirac pushed hard for the cut but was blocked by EU partners including Germany, which feared it would lose out in cross-border trade to French restaurants and was reluctant to match the proposed cuts because of budget ramifications.

The deal in Brussels won by Chirac's successor Nicolas Sarkozy allowed countries to lower VAT on a broad assortment of services, including restaurants.

Editing by Paul Casciato

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