November 14, 2013 / 10:26 AM / 4 years ago

France urges retail chains not to pass on sales tax rise

PARIS, Nov 14 (Reuters) - France's finance minister appealed to retailers' better instincts on Thursday, urging them not to pass on a rise in sales tax to shoppers in January as public frustration grows over a tax-heavy 2014 budget.

Following violent anti-tax protests in western France, Pierre Moscovici said he would not abandon plans to raise value added tax by 0.4 percent on Jan. 1.

But he would ask retail chains - already struggling with smaller margins than some of their European peers - not to raise their prices.

"Nobody has to reflect this (VAT hike) in their prices," he told RTL radio. "I think it's important to show virtuous behaviour, notably in the retail sector which along with the French people must display a civic spirit."

High labour costs have squeezed margins for French retailers including Carrefour, Leclerc and Casino, stoking criticism from business leaders who say President Francois Hollande's tax increase will unfairly penalize them.

Ratings agency S&P echoed the criticism when it downgraded French debt to AA+ to AA last week, citing insufficient efforts to reduce public spending and implement structural reform.

The retailers were not immediately available for comment on Thursday.

The Socialist government has promised to stop raising taxes once the 2014 increases - which also include a new 75 percent top rate of income tax and higher corporate taxes - have taken effect.

But unease about an economy that slipped back into negative territory in the third quarter has dragged Hollande's approval rating to a record low of 15 percent, according to a Yougov survey published on Thursday.

The government indefinitely suspended a planned tax on heavy road transport following violent protests by "red bonnet" activists in western France, its latest reversal after it backtracked on plans for two other taxes.

In a report to the government dated Oct. 25, regional prefects described French society as "increasingly tense, exasperated and angry" with much of the anger focused on tax increases, Le Figaro reported this week, citing a leaked copy.

Inflation in France slowed to its lowest rate in nearly four years in October, mirroring developments across the euro zone that unexpectedly led the European Central Bank to cut interest rates last week. (Reporting By Nicholas Vinocur; Editing by John Stonestreet)

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