Italian Revenue Agency Continues Campaign Against Underground Economy

by Ulrika Lomas, Tax-News.com, Brussels

29 July 2009

The Director of the Italian Revenue Agency praised the successes of the additional effort made by the Agency to increase tax collections from the hitherto “underground economy”, in his evidence to the Senate’s Finance & Treasury Commission.

The importance to Italy’s economy of the Agency’s action was also emphasised recently by the Governor of the Bank of Italy. He estimated that 15% of Italy’s economy remains in the non-observed economy and, therefore, untaxed. That has reduced from an estimated 20% at its height in 2001, but still results in a much heavier burden of taxation on the rest of the economy, lower international competitiveness and reduced possibilities for economic growth in Italy. For example, it has been estimated that around 30%, by amount, of all transactions which would have been subject to VAT are untaxed.

Total collections by the Agency from its action rose by 21%, or EUR1.7bn, in the first five months of this year, while there was an increase of EUR4.3bn in identified additional taxes (58% over the previous year).

The Agency views its battle to increase tax collections from this area as an integral part of the government’s drive to contain the increase in the public deficit in the current recession, as well as to protect good Italian companies from unfair competition. The Agency's success has been attributed to a targeted approach, particularly against VAT avoidance.

It has used, for example, sectoral studies, details of corporate purchases and employment records to detect anomalies in declarations by significant operators. In the opinion of its Director, as the Agency’s experience grows in this field, and as it becomes able to use more specific information, its measures are becoming more efficient.

The ability to use its regional offices, spread throughout the length of Italy, has also aided the process, says the Agency. By 2010, it will be able to call on 106 provincial and 384 local offices.

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