French restaurants prepare for VAT cut

Tue Jun 30, 2009 9:53am EDT
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By James Mackenzie

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."   Continued...