Italian Service Tax To Yield EUR26bn

by Ulrika Lomas, Tax-News.com, Brussels

07 July 2010

According to CGIA Mestre, the association of artisans and small businesses, the new municipal tax, the so-called ‘service tax’, to be included within the proposed Italian fiscal decentralisation reforms, could collect a total of EUR26bn (USD32.5bn) annually.

It is planned that the local service tax will replace the current plethora of separate taxes paid to local authorities in Italy. These include an additional local personal income tax rate of up to 0.8%, and an annual municipal property tax (ICI - imposta comunale sugli immobili) of up to 0.7%. Main family residences are exempted from the latter, and it is confirmed that they will remain exempt under the new tax.

In addition, some, but not all, municipalities raise additional taxation in relation to the services that they supply, such as rubbish collection and the cleaning of the streets, while they also have the right to raise a charge for the use of a vehicle in their area.

While the amounts of these charges are not generally high, they add to the complexity of the tax system. Therefore, while the provision of fiscal autonomy to municipal authority budgets is the prime target of the tax decentralization reforms, a single service tax would also simplify revenue collection.

While the new tax, according to CGIA’s estimates, would raise a total of EUR26bn for them each year, municipal authorities will also be handed greater fiscal responsibilities for expenditure in their areas under the decentralisation reforms – linking local taxation to local spending. However, they would also obtain certain advantages through the reorganisation, in that they would be able to choose the local tax rate (within specified limits) and, therefore, the amount of tax revenue collected.

The municipalities would also, according to CGIA, have more incentive to combat the non-declaration and evasion currently surrounding the local property sector in Italy, thereby raising their tax take.

The major benefit of the service tax will favour the northern regions of Italy, which will be able to obtain larger per capita tax collections due to their higher levels of income and average property values. CGIA’s estimates of per capita tax payments vary from over EUR700 per resident in the Val d’Aosta in the north-west of Italy, to less than EUR200 in Calabria in the south.

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