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Italy Changes Budget Bill, Again

by Ulrika Lomas,, Brussels

09 September 2011

Following accusations that its ‘anti-crisis’ budget, which has the target of balancing the Italian fiscal deficit by 2013, relied too heavily on uncertain revenue from measures against tax evasion, the Italian government has included further increased taxes prior to the approval of the EUR54.2bn (USD76.2bn) package by the Senate on September 7.

In particular, the government has reintroduced a ‘solidarity’ tax on incomes. However, instead of the previous 5% tax to be levied on annual personal incomes higher than EUR90,000 (USD126,300), increasing to 10% on annual incomes over EUR150,000, an additional rate of 3% will now be applied on all personal incomes over EUR300,000.

While the details of this ‘super-tax’ will be delineated in a further decree from the Ministry of the Economy by October 30 this year, it will be effective from January 1, 2011, to December 31, 2013. It will also be able to be extended by the government until the time that Italy’s budget is balanced.

Furthermore, while Premier Silvio Berlusconi had said, only a few days ago, that the government was holding a temporary rise in the normal 20% rate of value added tax (VAT) in reserve – in case it became necessary in the future – the new version of the budget now includes a 1% rise in that rate. The future rate of 21% will apply to transactions made on or after the effective date of the budgetary legislation, and there has been no indication of a fixed termination date.

Certain of the anti-tax evasion measures have also been detailed. For example, the corporate tax rate on shell companies (above all, those established to hold assets that are still operated by their individual owners) will be increased by 10.5% (from the normal 27.5% to 38%). The tax authorities will establish a presumed minimum income for such companies.

In a statement, the European Commission welcomed the new measures announced by the government. In its opinion, they “confirm the determination of the Italian authorities to meet the agreed targets of deficit and debt reduction, while contributing to tackle the deep rooted structural weaknesses of the Italian economy.”

However, it has been pointed out the rises in taxation in the budget, particularly the VAT rate hike (which has not been welcomed by the Italian commercial and retail associations), may cause a worsening of the, already weak, Italian economic recovery, while the very high Italian tax burdens will be increased even further.

While the increased certainty in its future revenues has been welcomed, practically the only voice in support of the budget, outside of government circles, has been heard from Confindustria, the Italian industrial federation, which looked forward to its approval as soon as possible. However, Confindustria then exhorted the government, following the passage of the measures through parliament, to re-concentrate all of its efforts on formulating policies to re-launch economic growth.

The government imposed a guillotine motion in the Senate to expedite its passage, and the budget bill has proceeded to the lower House for its approval.

TAGS: compliance | tax | economics | European Commission | value added tax (VAT) | tax compliance | fiscal policy | law | budget | legislation | tax rates | Italy | individual income tax | Europe

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