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IMF Urges Italy To Cut Labor Tax Rates

by Ulrika Lomas, Tax-News.com, Brussels

04 August 2017


Italy should lower its income taxes and shift revenue collection towards property and consumption taxes, the International Monetary Fund (IMF) has said.

Repeating its calls for an indirect tax shift, in its latest Article IV consultation for the country, the Fund urged that "such a reform would contribute to simplifying the tax system, which is complex, applies high rates on a base that has been significantly eroded with resort to exemptions and incentives, and suffers from large gaps."

It said that "a well-designed shift to taxing consumption," through reducing its high value-added tax (VAT) compliance and policy gaps, and lowering labor tax rates would support employment and production.

It said that broadening the tax base could involve lowering the labor tax wedge on secondary earners "to help address the high gender employment gap."

The IMF said that tax evasion should be combated with an emphasis on stricter enforcement and mobilization of the anti-money laundering framework.

Meanwhile, increasing property taxation would be an "efficient and equitable" way for Italy to achieve its revenue targets, given the high levels of household wealth in the county, the IMF said. It said that Italy should introduce a modern property tax, including a real estate tax on primary residences.

But Italy's authorities rejected the call for a real estate tax on primary residences. "Having abolished such a tax two years ago, they consider it would add to tax uncertainty and not yield sizable revenues," the IMF reported. Later in its report, the IMF agreed that "the investment climate would be improved by reducing tax uncertainty brought on by frequent changes."

TAGS: compliance | tax | investment | value added tax (VAT) | tax compliance | property tax | International Monetary Fund (IMF) | tax rates | Italy

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