Restaurants should pay higher VAT

FRANCE'S public spending watchdog has called for a controversial tax break for restaurants to be toughened.

The Cour des Comptes says last summer's VAT rate cut on restaurant food from 19.6 per cent to 5.5 per cent is costing the state too much in lost revenue and having little effect on prices.

It has recommended that it be increased to 10 or 12 per cent - half way between the current and previous rate.

The VAT deal, which costs about €3bn a year, was introduced to encourage restaurants to hire more staff and cut prices.

National statistics body Insee says the restaurant sector hired an extra 29,500 people between June 2009 and June 2010, an increase of about three per cent.

However, consumer rights group CLCV has called for the tax break to be scrapped completely, calling it a "proven failure". It said the price cut had not been passed on to customers.

The government is looking to cut a number of niches fiscales in its 2011 budget, but it appears to have ruled out making the restaurant VAT deal one of them.

The Cour des Comptes has also recommended scrapping the tax break on overtime.

Under the current system, workers pay no income tax on hours worked above the legal 35-hour weekly maximum.