Italy Details EUR24bn Fiscal Package

by Ulrika Lomas, Tax-News.com, Brussels

31 May 2010

Following the Italian Treasury’s report earlier this month that the maintenance of Italy’s promise to the European Union to reduce its fiscal deficit would require additional budgetary funds, the government has introduced a fiscal package amounting to EUR24bn (USD39.5bn) over the next two years.

Given the current difficult European financial situation, the government believes that it should keep strictly to its original commitments, to reduce the public deficit to below 3% by 2012. With the country’s recovery still fragile, however, the government actions have been concentrated on reducing its expenditure and continuing measures against tax evasion, rather than increasing taxes.

In particular, there will be a freeze on public sector pay until 2013, while a reduction in remuneration will be introduced for those on the highest salaries. Italy’s Premier, Silvio Berlusconi, called on public sector employees to show restraint as, in recent years, their salaries had increased by more than those in the private sector, and they had greater job security.

Within the package, it is proposed that stock options and bonuses will suffer additional taxation of 10%, and that southern Italian regions will be given the opportunity of introducing a tax to substitute, partially or wholly, for the Italian regional corporate tax which would have been payable by newly-formed businesses in their provinces.

It has also been confirmed that, by the end of this year, there will be an obligation on property owners to register previously-undeclared buildings for municipal taxes, with a reduction in statutory penalties by one-third for those who do so. Those who do not may suffer a penalty amounting to one-third of the property’s value. It is likely, however, that the details of this measure may be significantly modified in parliament.

Nevertheless, while announcing the package, Berlusconi, confirmed that, in general, taxes were not being increased, as the government’s overriding medium-term objective remained their future reduction.

There will, however, be an even-greater concentration on combating domestic tax evasion. For example, the limit on the use of cash for transactions will be reduced from EUR12,500 to EUR5,000, and there will be an obligation to produce an electronic receipt for all transactions for amounts above EUR3,000.

There will also be an increased participation in the action against tax evasion by the municipal authorities, which will receive 33% of the increased tax received through their efforts. There will also be increased cooperation between the Revenue Agency and the National Social Security Institute.

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