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Italy Approves 2015 Budget

by Ulrika Lomas, Tax-News.com, Brussels

26 December 2014


Italy's 2015 Budget Bill (legge di stabilità), the fiscal deficit in which has now been agreed by the European Commission, was also passed by both houses of parliament when the Chamber of Deputies approved it on December 22.

Italy's draft Budget, announced after a Cabinet meeting on October 15 this year, contained some EUR18bn (USD22bn) in tax cuts, mainly to businesses and to low-income households, in an attempt to stimulate the economy.

However, it also set a fiscal deficit-to-gross domestic product (GDP) ratio in 2015 of 0.1 percent below the three percent threshold originally imposed for member states by the European Union (EU), when it should have, under a previously-agreed program, been only 2.5 percent of GDP. A compromise was subsequently reached to set the targeted 2015 deficit at 2.6 percent of GDP, after the Italian Government had agreed to find another EUR4.5bn in new measures.

Part of the additional funds is to be found from an extension of the reverse charge value added tax (VAT) mechanism to the retail sector. The original Bill had already proposed further reverse charges on real estate and construction services, with all of the extensions being subject to EU approval. The reverse charge shifts the obligation to account for VAT to the recipient, instead of the supplier, to counteract fraud.

With regard to VAT, the Budget includes a cut in the rate applicable to e-books and e-periodicals from the 22 percent full rate to four percent, and an increase in the rate on wood fuel pellets from 10 percent to 22 percent.

A precautionary measure is retained in that, if Government spending cuts fail to yield the savings anticipated, and unless the Government then came up with other measures, there would be a two percent hike to the current 10 percent and 22 percent value added tax (VAT) rates with effect from the beginning of 2016, with a further one percent in 2017. The headline VAT rate could also be increased by a further 0.5 percent in 2018.

The measures remaining in the Budget also include confirmation of the EUR80 (USD98) per month income tax deduction, which was first paid on a temporary basis in May this year; and the extension unchanged for a further year of the tax credits for home restructuring and energy saving expenses.

The inclusion of the labor costs of full-time employees (not on fixed-term contracts) in the calculation of the regional tax on production (IRAP) in 2015 has also been confirmed, as has also the retroactive return of the IRAP tax rate to 3.9 percent in 2014, from the previously-agreed 3.5 percent. However, the Budget now includes a 10 percent tax credit for the 1.4m businesses in Italy (such as the self-employed), which have no employees and would otherwise be penalized by the return of the higher IRAP tax rate.

In addition, a new 15 percent fixed tax rate (covering individual and corporate taxes, IRAP and VAT), as against the previous five percent regime, is to be introduced for smaller businesses. Rather than being calculated, as previously, on net profitability, the new rate will be calculated on the basis of different coefficients depending on the various sectors of activity, including professionals.

Italy's Minister of the Economy and Finance Pier Carlo Padoan confirmed that, in his opinion, the Budget, as approved, is "balanced and contains important measures to stimulate economic growth and job creation."

TAGS: individuals | tax | business | value added tax (VAT) | fiscal policy | energy | employees | budget | corporation tax | tax credits | professionals | self-employment | tax rates | Italy | construction | retail | individual income tax | services | Europe

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