VAT and the financing of public services: a reminder from the Cour des Comptes

In a report published on February 9, the Conseil des prélèvements obligatoires (CPO), an institution attached to the Cour des Comptes, reiterates the primary objective of VAT: to finance public services. In particular, the CPO deplores the fact that the State now receives only half of all VAT revenues, and calls for the avoidance of a proliferation of economically inefficient reduced rates.

VAT must remain a yield tax

As the CPO report points out, VAT is "the main tax in the French tax system ", with " numerous advantages for public finances and the economy ".


Whereas the State collected 93% of VAT revenues in 2015, it will receive just 51% in 2021, with the remainder going to local authorities and social welfare bodies.

The CPO recommends avoiding VAT allocations " outside these two fields ". It mentions in particular the financing of public broadcasting, since the abolition of the licence fee, by a fraction of VAT, and highlights its " undesirable effects ".

The report also focuses on VAT fraud. According to INSEE estimates, " irregularities, whether intentional or unintentional ", are worth between 20 and 26 billion euros, " based on 2012 data ". The CPO explains that the digitization of the economy has opened the door to new types of fraud.

Limiting reduced VAT rates

According to the CPO, reduced rates represent a shortfall of 47 billion euros, or 24% of VAT yield in 2021. In all, there are no fewer than 43 tax niches.

Among the 10 tax niches weighing most heavily on the government budget are 4 VAT schemes:

  • The reduced rate of 10% for certain home improvements and conversions (excluding energy-efficiency renovations), at a cost of 4.5 billion euros;
  • The reduced rate of 5.5% for energy-saving renovation work, costing 2 billion euros;
  • The reduced rate of 10% in the restaurant sector, worth 4.2 billion euros;
  • Special VAT rates (8.5% for the standard rate and 2.1% for the reduced rate) in the French overseas territories, at a cost of 3.5 billion euros.

Within the European Union, France is one of the countries where VAT exemptions are most costly. While VAT at the standard rate represents an average of 71% of the tax base in Europe, it is only 65% in France.

However, according to the CPO report, the economic effectiveness of reduced VAT rates is " limited " and " a source of complexity for businesses ", who need to master the basics and learn how to reclaim VAT to keep their accounts in order.

The institution therefore recommends against adopting new reduced rates, and in favor of " other tools to pursue economic and public policy objectives ".