senate Committee Urges Halt to VAT Reform

A recent report from the French Senate Finance Committee has cast serious doubt on the viability of the proposed Value Added Tax (VAT) reform. The committee’s findings, released on April 9, 2025, strongly suggest that the reform, in its current state, is ill-prepared and should be abandoned. The core issue revolves around a proposed reduction in the VAT Down Base to €25,000, a measure that has sparked meaningful controversy and public outcry.

Public Opposition and Rapid Response

The reform ignited a firestorm of opposition, spearheaded by the National Auto-Entrepreneurs Federation. Their petition, demanding the abolition of the VAT Down Base reduction, rapidly gained traction, amassing over 100,000 signatures in a matter of days. This groundswell of public disapproval prompted the Senate Finance Committee to launch a series of expedited hearings to assess the potential impact of the changes.

Legislative Maneuvering and initial Rejection

The VAT reform was initially introduced by the goverment as an amendment during Senate deliberations. Despite facing an unfavorable opinion from the Finance Committee, the Senate initially rejected the amendment. However, in a subsequent deliberation, the Senate ultimately adopted the amendment, reportedly out of solidarity with the ruling government majority.This complex legislative path highlights the contentious nature of the proposed changes.

Key Concerns: Lack of Preparation and Consultation

The Senate Finance Committee’s report emphasizes a critical flaw in the reform process: a severe lack of preparation and consultation. The report states:

The improvisation and the unpreparedness of this reform aimed at greatly reducing the thresholds… While such a measure would affect 200,000 companies in many sectors of activity, from building to personal services, it had neither correctly prepared by administrations, nor concerted with the actors concerned, nor anticipated by those who had to implement it.
Senate Finance Committee Report, April 9, 2025

This criticism points to a significant disconnect between the government’s policy objectives and the practical realities faced by businesses and administrative bodies. The lack of adequate preparation and consultation coudl lead to significant disruptions and unintended consequences if the reform were to proceed as planned.

Potential Impact on Small Businesses

The proposed reduction in the VAT Down Base is projected to affect approximately 200,000 businesses across various sectors,including construction and personal services. For many small businesses and self-employed individuals, VAT represents a significant administrative burden. Lowering the threshold could potentially increase compliance costs and create additional challenges for these businesses, especially those operating on tight margins. According to recent data from the European Commission,small and medium-sized enterprises (SMEs) already face disproportionately high compliance costs related to VAT compared to larger corporations.

Looking Ahead: The Future of VAT Reform

The Senate Finance Committee’s report raises serious questions about the future of VAT reform in France. Given the strong opposition from businesses, the lack of preparation, and the potential for negative consequences, it remains to be seen whether the government will heed the committee’s proposal to abandon the current proposal.Option approaches, such as targeted support for small businesses or a more gradual implementation of changes, may be necessary to achieve meaningful VAT reform without causing undue disruption to the economy.