The reform of the deduction at source of income tax is the big omission in the balance sheets of Macron’s five-year term. The explanation is twofold. One, the reform was prepared under Hollande before being implemented under Macron. Two, it’s not really a tax reform. Nevertheless: MoneyVox devotes an episode of the review series of the reforms of the quinquennium.
This reform changes the manner and rate of tax payment. On the calculation of the final tax, this reform did not bring any change. This reminder, clear and clear, signed Brice Fabre, director of the household tax program at the Institute of Public Policy (IPP), helps to explain why the reform of the withholding tax does not appear in the multiple fiscal balance sheets of Macron’s five-year term. The concept of source tax, in a nutshell: calculate the share of your income that you devote to income taxtransform this into a sampling rate, and apply this rate to all your income: salary, retirement pension, property income, self-employed, etc. This does not prevent you from declaring your income before settling the outstanding balance.
Not a real tax reform. Certainly. But a big bang all the same! Remember the fears preceding this changeover. Remember the tax information campaigns, the discovery of a whole new term (individualized rate, neutral rate, CIMR, blank year, etc.), revisited pay slips, the completely upset tax calendar, and so on. Flashback… and a question: is this reform really a success all along the line?
Where does this reform come from?
1966, 1974, 1990, 2007… Levying income tax at source, directly on income, rather than waiting for the annual declaration, has long been an unfulfilled fad of French governments. Until 2015, when the President of the Republic at the time, Franois Hollande, relaunched this project with a view to application in 2018. The mainstay of the project: Christian Eckert, Secretary of State in charge of the Budget. The reform is tied up, voted and promulgated via the finance law for 2017. Expected entry into force: 1 January 2018.
Surprise, Friday, May 7, 2017: the withholding tax will in any case not come into force in January 2018 if Emmanuel Macron is elected, said the one who was then qualified candidate in the second round. A half-surprise since when he was Dutch Minister of Industry, Emmanuel Macron was far from being the first supporter of this reform in government. Whose act: postponement of a year to better bury the reform? Finally no, in particular because Bercy and the tax authorities have so marked out this reform that abandonment would be inappropriate… Tuesday, September 4, 2018: Income tax will be deducted at source on January 1, 2019, confirms the Prime Minister from then, douard Philippe.
The Philippe government and the Budget Minister Grald Darmanin are implementing this reform, prepared beforehand by Bercy, with a last minute adjustment on tax credits and reductions in the words of Anne Guyot-Welke, General Secretary of Solidaires Finances Publiques: an advance equivalent to 60% of the usual credits and reductions, paid from mid-January. Because it is one of the weak points of the initial reform: the calculation of the withholding tax does not include tax credits and reductions. Hence this mechanism of the advance, proposed in 2016 by the PS deputy Dominique Lefebvre, then adopted, but significantly boosted by the Philippe government which doubles the amount of the advance (from 30% to 60%) and anticipates the payment. It runs from March to mid-January. The now traditional good news of January 15!
Taxes: how do you know how much you receive in mid-January each year?
A final adjustment which did not harm, judges Christian Eckert afterwards. More than 3 years after the entry into force of this reform, the former Secretary of State regrets the excessive appropriation of this reform implemented without major bugs and now hailed by the Court of Auditors by his successor Grald Darmanin: I think it is really a shame not to have this continuity, to show that we are capable of carrying out a reform on two governments. (…) Everything was ready… But he recognizes all the same a merit Grald Darmanin: Following the postponement, he pleaded to go after this reform, with Bruno Parent, director general of public finances.
No industrial accident. But what results?
The Solidaires Finances Publiques, CGT and FO unions predicted an industrial accident. In fact, and apart from logical difficulties at the time of the changeover, the disaster did not take place: The accident did not occur and so much the better because it would have seriously handicapped the state budget, reacts the secretary General of Public Finance Solidarity.
At the end of January 2022, the Court of Auditors delivered an unusual and very satisfactory report for this reform, a report that the tenants of Bercy Bruno Le Maire and Olivier Dussopt hastened to welcome. Some figures delivered by the Court of Auditors, pell-mell: 81% of French people do not want a return to the old system98% of income subject to income tax is now deducted first at source, 55% reduction in requests for payment deadlines (following tax settlement difficulties)…
Ne plus ultra, this reform? Not so sure. The tax recovery rate has not changed, or only by 0.5 points… We are already at 99% and it is impossible to reach 100%, even with the deduction at source, nuance Anne Guyot-Welke.
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And following this big bang, the tax administration faced an influx of questions, queries or other complaints: Between 2018 and 2019, nearly 2 million more emails were sent to the tax authorities and 2.7 million more phone calls were made to the tax authorities, we read in the report of the Court. And the number of visits to impots.gouv.fr jumped 39% in 2018! While the response times by mail or telephone have deteriorated over the period 2017 to 2020. But the Court of Auditors recognizes that it is unable to carry out a real quantified assessment of the requests from users, the fault of an incomplete count of the calls and letters received by local tax services before 2020…
Is the balance sheet so positive?
In the end, mention good, even very good, judges the Court of Auditors: A success, both in its favorable cost-benefit ratio and in its high approval rate among the population. But this report calls for others. The Court of Auditors itself regrets the absence of a more complete assessment carried out by the General Inspectorate of Finance (IGF). We also regret the absence of a more exhaustive assessment carried out by the IGF, emphasizes Anne Guyot-Welke. Because it is a very significant investment, in a context of job cuts in public finance: we estimate the overall cost of this reform at 214 million euros. The same figure appears in the report of the Court of Auditors, which specifies that the full cost for the French economy is higher, with the investments made by the companies (…) in particular their payroll software.
A successful reform. But was this cost of 214.6 million euros worth it? Anne Guyot-Welke remains skeptical: There were other simpler alternatives, starting with the development of the monthly deduction of income tax, a project which was already well advanced. But we sold contemporaneity and this one is not real: there is always a delay of one year for the declaration and the payment of the final balance. And we still have doubts today on the fact that taxpayers have the reflex to modulate their rate of levy in the event of family or professional development.
Income tax: the end-of-declaration calculation puzzle
Projects that are still in progress
A rollback is now highly unlikely! So how far can this direct debit go, in order to erase the last weak points? A parallel project, and closely linked, is already underway, that of the automatic declaration (without having validated the document on impots.gouv.fr), launched in 2020 for nearly 12 million households. It remains under development. In this context, the promise made in 2020 of the automatic declaration of donations to associations remains a dead letter. The timing of pre-filled donations remains unknown at this stage. On this point, Christian Eckert comes to defend the services of the DGFiP: We are on more modest sums: that it is not the priority, when they have had to manage the health crisis, is understandable.
The next project directly linked to withholding at source, in 2022, is that immediate advance home employment tax credit. Users of the Cesu+ service can already claim it. This will be from April for clients of person service providers. And in 2024 for childcare via Pajemploi. Work in progress.
Tax credit: Cesu or service provider, here is the instructions for the immediate advance