Italian Per Capita Tax Burden Over 50%

by Ulrika Lomas, Tax-News.com, Brussels

23 November 2009

According to presentations to the national assembly by Italy’s commercialisti (tax and financial advisors), the per capita burden of Italian taxation has reached over 50%. They also made a further call for a reduction to regional corporate taxation.

They said that, after calculating GDP stripped of the estimated underground economy, the tax burden on Italian taxpayers increased from the official 2008 level of 42.8% to 50.6%. This was said to be “unsustainable.”

It was greater than other high-tax countries such as Denmark (49.2%), Sweden (47.6%) and Belgium (45.9%), which, it was said, also provided a better standard of public services and welfare. In addition, any reduction of GDP of those countries to allow for the non-taxpaying sector would be minimal.

With the high burden of taxation allied to a public debt equivalent to 115% of GDP, in the commercialisti's opinion Italy is now in a very difficult situation. While reducing taxation and high penalties for non-compliance was required, Italy has instead had ever-higher taxation and low penalties for many years. The result, the commercialisti claimed, is the current levels of the underground economy and the consequent evasion of taxes.

The commercialisti also called for a reduction, and eventual abolition, of IRAP (the regional corporate tax), of which there has been much talk in the last two months, with little result. IRAP, it was said, is an unjust tax, in that the non-deductibility under it of interest paid penalized businesses that, in times of recession, have had to resort to increased borrowing.

Therefore, while they were aware that IRAP provides substantial tax revenue to support public services, it was suggested that an immediate move could be to allow the deduction of labor costs and interest paid from profits subject to tax. Its future further reduction should then, if necessary, be accompanied by substitute taxes from other sources.

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