Paris, April 28 - Sales tax on restaurant and cafe bills in France will fall to 5.5 percent from 19.6 percent on July 1, the government said on Tuesday, after the industry promised to pass on price cuts and go on a hiring spree.
Successive French governments have campaigned for seven years to cut value-added tax (VAT) on dining out, arguing that the existing rate was too punitive in a country that prides itself on its culinary heritage.
President Nicolas Sarkozy finally got the green light from Brussels last month to slash VAT as part of a broader stimulus package drawn up to tackle the global economic crisis.
However, the reduction will have a sizeable impact on French state accounts at a time when the budget deficit is already ballooning, and the government only agreed to introduce the measure after negotiations with trade chiefs.
Junior Business Minister Herve Novelli said on Tuesday that restaurant and cafe bodies had agreed to hire 40,000 workers over the following two years and reduce the price for many items by 11.8 percent, including lunch-time menus and a cup of coffee.
"By this agreement, you are meeting the expectations of the consumers and showing that you are responsible business leaders and not what the press sometimes portrayed you as," Novelli said in a speech to trade representatives.
The French media has questioned whether the price cut would be passed on to clients and it was not immediately clear how the government intended to police the accord.
Novelli said there were 180,000 restaurants and cafes in France and 80,000 canteens, employing some 680,000 people, making it one of the biggest employers in the country.
The VAT cut is timed to coincide with the start of the tourist season and Novelli said 42 percent of visitors told pollsters they were drawn to France because of its cuisine.
Former French President Jacques Chirac made cutting VAT for restaurants an election campaign pledge in 2002 and although he won the vote he was unable to honour the promise because such moves had to be approved by all EU member states.
Neighbouring Germany in particular refused to endorse the move. It feared it would lose out in cross-border trade to French restaurants and was reluctant to match the proposed cuts because of the budget ramifications.
Last month's deal in Brussels allowed countries to lower VAT on a broad assortment of services, including restaurants, but not every country is expected to take advantage of the change.