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Italian Small Businesses Snub Token Tax Cut

by Ulrika Lomas, Tax-News.com, Brussels

29 April 2014


Centro Studi CAN, the national federation of Italian artisans and small and medium-sized enterprises, has said the decision by Premier Matteo Renzi's Government to reduce the regional tax on production by 10 percent will merely provide an "aspirin" to its members.

CAN has calculated that the reduction in the basic rate of IRAP from 3.9 percent to 3.5 percent will reduce the annual Italian total tax rate (TTR) on small firms by only 0.6 percent – from 63.8 percent to 63.2 percent.

First, as there will be no decrease in the additional IRAP rates set by individual regions, the effective overall IRAP cut is calculated to be only about 9 percent.

Second, as IRAP relative to labor costs is deductible from income, a reduction in the IRAP rate has the opposite effect of increasing the income of small non-incorporated businesses subject to other taxes. The resultant one percent increase in income taxes payable will have the effect of reducing significantly the impact of the IRAP cut.

In fact, the Government itself has described the IRAP cut as only a preliminary signal of its eventual intention, as contained in the three-year economic program of the Economic and Financial Document that recently received parliamentary approval, "to reduce business taxation, in a substantial manner, as soon as the resources are available."

TAGS: individuals | artisans | tax | small business | business | entrepreneurs | corporation tax | tax rates | Italy | individual income tax

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