Government to introduce PAYE in France

The French government has announced its intention to introduce pay as you earn tax collection with effect from 2009. France is the only country in the OECD not to have income tax deducted at source for employees, as a result of which, everyone pays their income tax a year in arrears. This makes the system one of the most expensive in the world to administer. Employers already deduct national insurance contributions from pay packets, so adding income tax to the list of deductions is unlikely to be an insurmountable obstacle. A bigger obstacle may well be the intransigence of the public sector trade unions, who blocked a similar attempt in 2002, for fear of job losses across France. Indeed, a reduction in the number of French civil servants is one of the key objectives of the reform, with estimates of around 1500 jobs being axed as a result of the change. In order to introduce the reforms, the French government have stated that there will be an income tax ‘holiday’ for salaried income generated in 2008. Whilst some see this as an electoral bribe, it does seem to be the only way of avoiding a double imposition of tax in either 2008 or 2009. As the French socialist party have also committed themselves to the same reform, it does seem that change will happen. However, as with most government announcements in France, it is often better to wait until the law is passed to see if it happens and, even then, there is no guarantee it will actually be implemented!