What is the flat tax, the tax the government is targeting?
The flat tax is a system for taxing capital income that was introduced to simplify and reduce the tax burden on taxpayers. However, in light of the growing budget deficit, the government is considering measures to increase tax revenue, including a possible increase in the flat tax and other one-time levies.
The flat tax, also known as the PFU (prélèvement forfaitaire unique), is a tax system applied to capital income earned by individuals in France. It applies to income from movable capital, such as dividends and interest, as well as capital gains from the sale of securities and digital assets.
The flat tax consists of two parts: social security contributions at a rate of 17.2% and income tax at a rate of 12.8%. In principle, the flat tax is withheld at source (except for digital assets) and appears pre-filled directly on the online tax return. Taxpayers may also choose to have the progressive tax scale applied.
During François Hollande’s term in office, through 2017, this income was subject to a progressive tax scale, which for high-income earners meant potentially very high taxes (income tax rates of 41% or even 45% plus 17.2% in social security contributions).
Reduce the government deficit
The economic slowdown is resulting in lower-than-expected tax revenues. The budget deficit could soon approach 6 percent. In order to bring this rate down to 5 percent, the new government plans to raise up to 50 billion euros.
The new Minister of the Economy, Finance, and Industry, Antoine Armand, stated in an interview with the JDD that his primary goal was to “reduce public spending and make it more efficient.” However, these spending cuts do not rule out the possibility of tax increases, as he also noted that it would be “irresponsible to automatically rule out certain one-time and targeted taxes.”
A few-point increase in the flat tax (from 30 to 33 or even 35 percent) would boost tax revenue by more than one billion euros. Other options would be considered, such as freezing the income tax brackets, creating a corporate income tax surcharge, or even raising the standard VAT rate.
