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Berlusconi Threatens Future VAT Increase

by Ulrika Lomas,, Brussels

06 September 2011

In reply to accusations that the ‘anti-crisis’ budget relies too heavily on additional, but uncertain, revenue from measures against tax evasion, Italy’s Premier Silvio Belusconi has replied that his government could always resort to an increase in the rate of value added tax (VAT), if necessary.

Despite the continual changes, or proposed changes, to the budget during the Italian parliamentary approval process, Berlusconi was at pains to reassure the European political leaders present at the recent conference on Libya that there was no danger that the target of balancing the Italian fiscal deficit in 2013 would not be met.

He disclosed that he had spoken with the president of the European Council, Herman Van Rompuy, as well as the president of the European Commission, Josè Manuel Barroso, to underline Italy’s commitment to that objective, as well as to profess that there would be no problem in obtaining parliamentary approval to the budget’s final package of measures.

He then made reference to the possible inclusion in the budget, if additional funds are required, of a rise in the current 20% VAT rate, which has been pushed by, for example, Confindustria, the Italian industrial federation, but opposed by Giulio Tremonti, the Minister of the Economy, due to the effect it might have in restricting domestic consumption and, thereby, Italy’s gross domestic product.

This time, Berlusconi, who has himself never ruled out the possibility of a VAT rise, pointed out such a measure was to be held in reserve. A 1% rate increase would yield a further EUR4bn (USD5.7bn), and he added that he could provide for such a rise in VAT at any time he felt that it was required - possibly by 2%, but only, for example, for a period of three months.

Obviously, Berlusconi has no intention of ruling out any possible means of increasing the country’s tax revenues while the final shape of the budget package remains uncertain, but Tremonti, in his testimony to the Senate on the latest proposed changes to the budget, did confirm that the Italian government has no intention of introducing a further tax amnesty.

He said that, while another tax amnesty, as a single measure, would probably bring in further funds, it would do nothing to provide a meaningful change in Italy’s fiscal deficit position in future years.

The current version of the budget package sees the cancellation of the ‘solidarity’ tax on higher incomes being largely compensated by other measures against tax evasion, which have been said to be largely unquantifiable and uncertain, particularly with regard to the final amount of tax they will garner.

The judgment of Confindustria on the new form of the budget has been harsh. It said that the budgetary package is “weak and inadequate”, and that, as it was unable to value certain elements therein, it was unable to establish with certainty whether the budget’s measures would be sufficient. It added that it was extremely preoccupied with the way in which Italy’s deficit problems, and the need to encourage an economic recovery, were being dealt with.

TAGS: compliance | tax | economics | business | European Commission | value added tax (VAT) | tax compliance | fiscal policy | budget | legislation | Italy | Europe

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