Taxation: towards a merger of income tax and CSG?

Since the mid-2000s, the reconciliation of income tax (IR) and the general social contribution (CSG) has become a recurring issue. It was even a commitment presidential campaign by Francois Hollande. The project was finally shelved in favor of… the implementation of the IR withholding at source.

The IR is a family and progressive tax which is today the subject of many criticisms. It is particularly criticized for its low yield, a base undermined by a multitude of tax loopholes (exemptions, allowances, deductions, credits and tax reductions) and its high concentration on less than half of taxpayers: 56% of tax households do not pay not income tax.

Created more recently than the IR, the CSG is today paid by almost all individuals, with the exception of certain retirees receiving very low incomes. It is a proportional, individualized levy, dedicated to the financing of social protection.

It applies from the first euro at the rate of 9.2% to all earned income, salaried and self-employed, as well as replacement income (unemployment benefits, retirement pension). Its base is wider than that used for income tax since it is calculated on gross income, while income tax is calculated on overall net income after deduction of social security contributions and certain category deficits.

Read also: What future for income tax?

The CSG also applies to certain elements of remuneration that are non-taxable and exempt from social security contributions – such as profit-sharing and profit-sharing bonuses –, as well as income from assets (rent, capital gains on disposal) and income from investment (dividends, interest, capital gains) at the rate of 17.2%, taking into account additional deductions. Since 1998, the CSG has brought in more than income tax: 100 billion euros against 77 billion in 2017. And it is likely that this gap has increased further since the introduction of the flat-rate levy on income from the capital.

Remedy imperfections

Apart from the fact that the coexistence of two income taxes constitutes a French exception, the planned merger of CSG and IR “responds to many objectives, sometimes contradictory to each other”, pointed out the Mandatory Levies Council in a report published in February 2015 (“Income tax, CSG: what reforms? “).

Based on the observation that a poor knowledge of the tax system is generally associated with a lower acceptance of tax, the establishment of a single tax is often presented as “the solution” to improve its understanding and readability. It is clear that this is not the case today. According to the latest barometer of the Council of compulsory levies, “it appears that the French generally have a poor knowledge of the tax system: 15% of them do not know if they pay the CSG or not, and among those who say they pay it, 45% do not know its rate”.

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