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Berlusconi Drops 'Solidarity' Tax

by Ulrika Lomas,, Brussels

31 August 2011

A government coalition meeting on August 29, chaired by Premier Silvio Berlusconi, has agreed that there will be changes to the “anti-crisis” budget measures which the government has put forward to balance Italy’s budget by 2013.

In particular, Berlusconi has announced that the additional 5% ‘solidarity’ tax to be levied on annual personal incomes higher than EUR90,000 (USD131,000), that would have increased to 10% on annual incomes over EUR150,000, has been cancelled, except for politicians. Berlusconi had already indicated that this additional taxation was against all his tax-cutting principles (and also an attack on the taxpayers from whom he has received solid political support in the past).

It is proposed that the reduction in expected revenue from the solidarity tax, of some EUR3.8bn over its three year life, will be replaced by additional measures against tax evasion in the country. There will also be a significant curtailment to the tax breaks currently enjoyed by cooperatives.

While the further measures against tax evasion have yet to be detailed, and their effect quantified, they are expected to include further involvement by municipalities. The planned reductions in local authority spending, amounting to some EUR6bn in 2012 and another EUR3.2bn in 2013, had been widely protested, and have now been alleviated.

Given the reduction in services which those cuts would have entailed, local politicians had noisily requested the government to find other sources of funds for its budget. As a result, the municipalities will now receive (as they have in the past from previous action) some of the extra revenue collected from new local measures against tax evasion, and that will enable a lessening of the cuts that they would have suffered.

While there has also been a reduction in the expected benefits to the government’s budget from changes to the pension system, there has been no mention, as yet, of an increase to the normal rate of value-added tax, which has been widely touted in some quarters; of the introduction of a wealth tax, that had received support from others; or of additional penalties being placed on Italian individuals who repatriated or regularized previously-undeclared assets during the last tax amnesty which ended in April last year.

Finally, however, it is still planned that the extra corporate income tax rate payable by energy companies in Italy, which had previously been increased by 6.5% above the normal rate, will rise by a further 4% for the next three years. This proposal has been criticized as it is to be extended to cover companies involved in all types of energy, including renewables, and, it is said, will increase energy prices in the economy.

It was confirmed that it remains the government’s intention that the overall fiscal effect of the budget cannot be altered, and that the government would now proceed to put forward the suggested amendments in parliament where it is prepared to have an open debate with the parliamentary opposition.

TAGS: individuals | environment | compliance | tax | economics | business | value added tax (VAT) | tax compliance | fiscal policy | energy | law | budget | corporation tax | legislation | tax rates | Italy | tax breaks | individual income tax

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