Time For Tax Reform, Say Italian Companies

by Ulrika Lomas, Tax-News.com, Brussels

25 November 2010

In the presence of the Italian President, Giorgio Napolitano, and on the occasion of the centenary of Assonime, the association of Italian limited companies, its chairman, Luigi Abete, said that the country needs a re-balancing of its tax system between direct and indirect taxes.

During his speech at Assonime’s celebratory conference, Abete gave his view that the present Italian fiscal system is unbalanced and unable to sustain investment and economic growth. It will be necessary to reconsider the relation, within total revenue collected, between direct and indirect taxes, and between taxes on income and on capital, he said.

Abete pointed out that the Italian tax system is based, fundamentally, on direct taxes. In comparison with other countries in the Euro area, the burden of direct taxes in Italy, at over 35%, is 3% greater than the average, while the level of indirect taxes is 3% less. In addition, the ratio of revenue received from Italian value-added tax (VAT) to gross domestic product is amongst the lowest in Europe.

The first change to the Italian system must therefore contain, he concluded, a shift away from income taxes towards VAT.

Furthermore, he added, within direct taxation, the burden on individual and corporate incomes is much greater than that on financial income, which is generally taxed at a flat rate of 12.5%. The time is right, he said, to reduce this difference and increase the taxation of financial assets to around 18%-20%, as in many parts of Europe.

He believed that those reforms allow for a considerable decrease in taxes on employees and employers without reducing the country’s total tax take, and with a strongly positive effect on economic growth and investment.

In addition, in the last few years, he said that too many modifications have been made to the tax system, at a heavy cost to businesses in administration time. The system has become ever more complicated, less transparent and more unpredictable, and tax evasion has, consequently, reached high levels.

Italy, he continued, thereby loses out in an international context, where capital investors choose those systems with an open relationship between tax administrators and taxpayers, based on a certainty of tax payable and the equitable application of tax regulations.

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