Italy Considering Plan To Hike VAT

by Ulrika Lomas, Tax-News.com, Brussels

02 June 2005

The Italian government has been considering a new proposal to impose a 1% VAT increase, a move that would raise several billion euros for the country's overstrained budget.

The 1% increase in Value Added Tax to 21% would bring in an additional EUR5 billion for a government struggling to balance its books and stay on the right side of the European Union's deficit and debt limits.

The government is also planning to raise an additional EUR1.3 billion in tax revenues next year as a result of a clampdown on tax evasion.

Both measures will help to offset the elimination of IRAP, a business tax levied at regional level which Prime Minister Silvio Belusconi has pledged to repeal.

In an opinion published in March, the IRAP regime was considered illegal by an advocate general of the European Court of Justice, who argued that it resembled too closely the existing VAT regime, in contravention of EU law.

The opinions of advocates general are non-binding, although the ECJ tends to go along with their arguments in the majority of cases.

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