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Italian Business Against VAT Rate Hikes

by Ulrika Lomas,, Brussels

06 July 2011

Ivan Malavasi, the new president of Rete Imprese Italia, which is formed of five associations representing artisans, traders, the tourist sector and other services in Italy, has stressed that the government’s proposed tax reforms should not be realized by penalizing consumer spending.

The government’s three-year tax reform framework foresees a shift in tax burdens away from the direct taxation of employees and employers, towards indirect and financial taxes. Personal income tax rates are to be reduced, and, while there is no mention of an immediate increase to the rate of value-added tax (VAT), it is intended that it will gradually rise.

However, according to Malavasi, projected Italian tax reforms should be undertaken according to three overriding principles – “the rationalization of the whole tax system; the simplification of tax administration; and continual support of economic development and consumption.” The reduction of direct tax burdens, it was underlined, should not be achieved by raising the VAT rate and, thereby, penalizing consumers.

While future reductions in both individual and corporate tax rates would be welcomed by Rete Imprese Italia, the prospect of VAT increases would go against their previous recommendations. Rete Impresa considers that the on-going process of reducing public spending (particularly through the fiscal decentralization process), further action against tax evasion and a simplification of the myriad of tax deductions, allowances, special regimes and reduced rates in the current tax code, would provide the funds for tax cuts.

It has also previously expressed the opinion that an increase to the rate of VAT would increase inflation, attack families on low to middle incomes, and encourage further VAT evasion, which is already estimated at around 2.5% of the country’s gross domestic product (GDP). It is forecast that a shift in tax revenues from personal income tax to VAT, equivalent to 1% of GDP, would reduce GDP by some 0.8%.

Rete Imprese Italia hopes that the tax reform package will be allowed time for a full discussion in parliament, in order that all of the above opinions can be expressed.

TAGS: individuals | artisans | tax | business | proprietors | value added tax (VAT) | entertainers | entrepreneurs | corporation tax | self-employment | tax rates | Italy | tax reform | individual income tax | services

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