Monday, May 25, 2015

Levy taxes at source: is it realistic? – Europe1

Europe 1

Europe 1

By Gabriel and Emmanuel Duteil Vedrenne

This is a sea serpent which resurfaced for the umpteenth time: the government plans to launch the reform of the withholding tax by the end of the quinquennium. “There was a period of three or four years that needs to spread this levy reform to the source. But yes, before the end of five years, it has been started,” assured the president of the PS group in the Assembly Bruno Le Roux, Sunday at the Grand Appointment Europe 1 / Le Monde / iTELE.

What is the tax at source? The principle of withholding tax is to pay taxes on income every month. For employees, the transfer tax is made by the employer, while independent workers are in charge themselves. Once a year, the state establishes a balance sheet and repay taxpayers in case of overpayment or asked to pay additional otherwise.

This system has several advantages. The first is to end the one-year lag experienced by French taxpayers: they will pay such taxes in September 2015 for the year 2014. A not ideal system in case of change of employment status, when a person loses eg employment or standard of living and exchange must put money aside to anticipate this shift. The state could also find his account, having a source of monthly income, not yearly.

Y pass, all but the first. On paper, the collection at source has many benefits: France is also one of only three OECD countries to have preserved a system “declarative”. On many occasions, the French governments have set this issue on the table. During one five year term of Francois Hollande, this reform was mentioned at least four times: Jean-Marc Ayrault in December 2013, by the Elysee Palace in December 2014, the government spokesman Stéphane Le Foll and Wednesday So the president of the PS group in the Assembly on Sunday on Europe 1.

A file that would take time. If the government’s intentions are confirmed, the move to levy the source would require a minimum of two to three years. In the best case, the system does not change before 2017. Such a tax reform would thus require the approval of the next president of the Republic.

Why such a delay? First, because it would require the Department of Finance invents new software to manage the withholding. The fiasco supposed enable software to centralize and standardize payroll officials urged caution. Then because it would also prepare companies, since it is they who would pay the tax on the income of each employee once a month. And especially because such a reform is very expensive. Since the French are currently paying their income taxes with an offset year, go to a real-time tax would mean a lost year for the state. If, for example, the withholding tax is set up in 2018, taxpayers would never pay their taxes for the year 2017. This means a loss of about 70 billion euros for the state. Not to mention one last hurdle advanced by the PS deputy René Dosière related “tax officials do not want it because the system become so simplified that they are afraid of job losses,” he asserted in September 2014 Europe1 .com.

So many obstacles that are telling Bruno Le Roux that “there is a period of three or four years that needs to spread this levy reform to the source.” Especially at Bercy, some also argue for a merger of the income tax with CSG, an equally complicated issue. A reform is possible but it will take time and political will.


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