French VAT hike to hit pizzas, quiches - not baguettes

Thu Dec 29, 2011 3:41pm EST
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PARIS (Reuters) - The French government was forced to clarify on Thursday that a Jan 1. VAT hike will apply only to certain takeaway foods like pizzas, quiches and hamburgers, as the public fretted that prices could jump for staples like bread and pastries.

France announced in November that it would raise its lower 5.5 percent valued-added tax rate - applicable to restaurants, certain foodstuffs, energy and house repairs - to 7 percent under a package of measures aimed at slicing 65 billion euros off its bloated budget deficit between 2012 and 2016.

The New Year move was designed to reassure financial markets that France can meet its deficit-reduction targets as it strives to preserve its coveted AAA credit rating.

But the rules have caused confusion among consumers who fear that at a time of rampant unemployment, buoyant inflation and dwindling purchasing power, the higher tax rates will hit daily essentials like baguettes as well as buttery patisseries - also considered a staple in France.

"Regarding food products, the VAT increase will only apply to food prepared for immediate consumption," Finance Minister Francois Baroin said in a statement, following concern among both consumers and bakeries - who will now be dealing with three different tax rates.

As well as the 5.5 percent and 7 percent VAT rates, bakers must also apply the standard 19.6 percent VAT rate to chocolates and other packaged sweets.

The finance ministry said baguettes, croissants, pains au chocolat and other pastries would continue to be taxed at 5.5 percent, while VAT on sandwiches and heated-up products like pizzas and quiches would rise to 7 percent.

The confusion prompted one baker to ponder whether he should charge different prices for people who bought pizza slices cold and took them home to heat them up, according to the daily Les Echos.

(Reporting By Vicky Buffery)

<p>A French baker places freshly-baked baguettes, the traditional French bread, in wicker baskets in his shop in Strasbourg eastern France August 6, 2010. REUTERS/Vincent Kessler</p>