Income tax: what the withholding tax would change

THE ECO SCAN – The tax administration estimates that the contribution of the reform would be limited, insofar as 66% of taxpayers are paid monthly. But the project has its supporters.

Several times mentioned since the start of the five-year term, but also of the time of and, comes back to the mat with the approach of the congress of the PS. According to the president of the PS group in the National Assembly, this migration from income tax to withholding tax will even be initiated before the end of the five-year term.

Technically, such a change, which has the particular interest of resolving difficulties for those whose income falls from one year to the next and who must pay their tax, would require “three years to four years”, considers Dominique Lefebvre, vice-president of the finance committee and author of the report on household taxation of April 2014. Excluding any possibility of setting up before the end of the mandate, he considers, in an interview with Figaro, that this reform does not can start “from 2018”, the time to settle complex subjects on a technical and legal level. Among the questions that arise, who will be responsible for this levy: companies or banks? The question of the confidentiality of tax data is not trivial either. Not to mention the challenge of the year of transition between the current system – the payment of tax is made the year following the collection of income – and the withholding, which is carried out simultaneously, with the risk of a shortfall for the state.

The tax administration estimates for its part that the contribution of the reform would be limited, insofar as 66% of taxpayers are now paid monthly (in 2014) and that payment is made electronically in 80% of cases.

But the project also has its ardent supporters. , a liberal social think tank, seeks in a study published last week, to convince of the urgency of this reform, which more than 60% of the French consider favorably. He recommends a transitional period of “48 months”, during which the withholding tax would gradually increase, which would notably make it possible to “smooth” the fiscal white year resulting from the changeover from a system to other. Here are his arguments.

• Bring simplification and readability

The reform will prevent households, and in particular employees, from paying their taxes themselves and with a one-year delay. The employer would in fact take care of it, over time, at the time of payment of remuneration. This would “offer considerable progress in terms of tax efficiency and readability, by bringing the calendars for the availability of income and the levy closer together,” Terra Nova explains. This would facilitate “its understanding, and therefore its acceptance”. If declarations do not disappear in the new system, they would be made “fully automatic” and therefore significantly reduced for the great mass of taxpayers “.

• Clean up income tax

The complete dematerialization of procedures must be an opportunity to rationalize. Clearly, “the new organization will probably encourage a reduction in the number of tax loopholes which today set the base of the IR”. The new device would also promote better coordination between IR and CSG.

• Stimulation of consumption

The think tank explains that the deferred payment of tax is a source of concern for the French, given the risks to employment. This encourages them to opt for “precautionary savings”. Reducing these savings could therefore encourage consumption and investment.

• Credibility brought to public speaking

Today, there is a very significant delay – of two years – between the moment when a measure is announced and when it materializes for the citizen. This gives an impression of inertia in public speech. Conversely, the withholding tax (PAS) makes it possible to make the effects of fiscal policy “almost instantaneous”. The taxpayer can “directly measure the reality of the announcements” made by the government, insists the Terra Nova report.

• Savings in administration

It will still be necessary to manage more than 36 million tax households, but “the main part of the data and funds will have been acquired from 3 million companies or paying agencies which will become the real tax collectors”, writes Terra Nova. The think tank estimates the cost of administering income tax (IR) at some 1.7 billion euros for 2013, or nearly 25,000 people (full-time equivalents). Switching to PAS would save around 10,000 jobs. This would make the planned workforce reductions “bearable” and free up “additional resources for other public utility projects”.