GST Implementation History

France is the first country that introduced GST. It was introduced on 1954. Its
introduction was requiring because very high sales taxes and tariffs encourage
cheating and smuggling. The system was divided into duel system of GST. First is
CGST which is including central excise duty, service tax and additional duties of
customs. Then, SGST which includes value-added tax, central sales tax,
entertainment tax, luxury tax, octroy, lottery tax, electricity duty, state surcharges
related to supply of goods and services and purchase tax.

It was implemented because empirical studies have shown the interlinks

between the GST performance of a country and its level of development. The revenue
gains from GST are likely to be higher in an economy with higher level of per capita
income, lower share of agriculture, and higher level of literacy. GST proves to be an
efficient tool for revenue collection and its performance. Therefore, has direct impact
on fiscal mobilization, macroeconomic stability, and development. The GST has more
revenue potential compared with alternatives in indirect taxation. It is more broad-
based and entails a trail of invoices that can help on improve tax compliance and
enforcement.

The GST rate in France was divided into two which is standard rate and reduced
rate. The standard rate is 20% and reduced rate are 2.1%,5.5%, and 10%.
The standard GST rate applies to all supplies of goods or services, unless a specific
measure provides for a reduced rate or exemption. The reduced rate at 2.1% is for
pharmaceuticals while rate at 5.5% is on foodstuffs, some entertainment events, and
some domestic personal services. The GST rate at10% is applied on accommodation,
restaurant, and transport.
Issue(s) Related to GST Implementation

Nowadays, there is no issues related with GST implementation as France is the first
country who implemented this tax. The France’s government had taken many step-in
order to make sure the GST implementation in their country can develop it properly
that can give benefit to the country and their society. There are few step had been
taken by the government which is:

1) The standard rate in France is below than average standard rate in European
Union (EU)

The standard rate in France is 20% while in European Union the average standard
rate is 21.6%. Approximately 55% of the products in the price index are subject to the
standard rate in France (Gautier and Lalliard, 2013). Currently, the standard rate
applied in the EU ranges from 17% in Luxembourg to 27% in Hungary. A standard rate
of 19-21 % is applied in all neighboring countries. However, only four countries
(Luxembourg, Malta, Cyprus, and Germany) have a lower standard rate than France.

2) There is exception in applying reduced rated in certain product and services in

France

Certain products or services such as food, hotels and transport are taxed at reduced
rates in France and practically everywhere in Europe. For example, Denmark,
Bulgaria, Slovakia, Lithuania, and Estonia are the only Member States to tax all food
at the standard rate. However, France is one of the only countries to tax non-alcoholic
beverages, TV licenses and pay TV at reduced VAT rates. Also, in other countries
domestic care is often taxed at the standard rate, but not so in France.

3) Reduces the tax burden on labor

France is reducing the tax burden on labor with EUR 30 billion as part of the
Responsibility and Solidarity Pact. The expenditure based consolidation strategy will
need to be continued and even reinforced to further rein in the deficit and reduce the
tax burden.
References

1. French Ministry of Finance (2014), Annexe au projet de loi de finances pour

2015, Évaluation des voies et moyens, Tome II, Dépenses fiscales, version du
06/10/2014.
2. Gautier, E. and Lalliard, A. (2013) 'Quels sont les effets sur l'inflation des
changements de TVA en France?' Bulletin de la Banque de France, N 194, 4e
trimestre 2013.
3. Goods and Service Tax (GST) in FRANCE | Indirect Taxes By LawCrux
Advisors. (2012).