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Italian Tax Package Gets Complete Overhaul

by Ulrika Lomas,, Brussels

02 November 2012

Following meetings in parliament between Italy’s Minister of the Economy Vittorio Grilli and leading politicians on October 31, an agreement has been reached for the government to strike out significant parts of its latest revenue-neutral budgetary package.

Grilli had already responded a few days ago to criticism of his proposals by stating that the government was “open to a discussion” on all of its measures, but the agreement he has now reached with the majority of the parties in parliament has eliminated or reduced the effect of all of the major tax measures in the package.

In particular, the restrictions on individual income tax (IRPEF) credits or deductions remain for now, but their retrospective effect on 2012 earnings has been cancelled.

The government’s proposal remains that, for those individuals earning incomes above EUR15,000 (USD19,500) per year, the expenses claimed for each tax deduction would have to be reduced by EUR250 and an overall EUR3,000 maximum tax deduction imposed, but it has been thrown back to the Treasury for further revenue calculations in the light of the other changes to the measures.

The proposed 1% reduction in the two lowest IRPEF rates, from 23% to 22% for incomes up to EUR15,000, and from 27% to 26% for incomes from EUR15,001 to EUR28,000, as from January 1, 2013 have also been cancelled, as has, in consequence, the 1% rise in the 10% rate of value added tax VAT programmed for July 1 next year. The 1% hike in the higher 21% VAT rate, however, still remains.

It is obvious that the changes will require a complete remodelling of the package by the Treasury, to ascertain the exact effect of the changes. While maintaining its revenue-neutrality, it will need to be decided if net funds are still available to reduce individual and corporate direct tax burdens.

However, while welcoming the news of the cancelled increase to the 10% VAT rate, Codacons, the Italian association whose object is to protect consumer rights, was surprised that the government and politicians had been unable also to use the resources from the elimination of the IRPEF rate cuts also to cancel the rise in the 21% VAT rate. It repeated its concern that the latter’s application in the present economic circumstances will further depress domestic consumption, which is already falling sharply.

TAGS: individuals | tax | economics | value added tax (VAT) | fiscal policy | law | budget | tax credits | ministry of finance | legislation | Italy | tax breaks | individual income tax

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