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Italy Passes Anti-Crisis Budget

by Ulrika Lomas,, Brussels

16 September 2011

Despite opposition both outside and inside parliament, Italy’s lower Chamber has followed the Senate and approved the same version of the ‘anti-crisis’ budget, with the help of a government-imposed guillotine motion.

With the signature of President Giorgio Napolitano, which was put on the law on September 15, the budget is already in force. With the target of balancing the Italian fiscal deficit by 2013, its effect on Italy’s fiscal deficit will reach EUR54.2bn (USD74.3bn) in 2013, with tax increases now accounting for some 65% of the package.

For example, it is expected that over EUR4.2bn of that total will be found from the increase of 1%, from 20% to 21%, in the value-added tax rate (VAT). Furthermore, while Premier Silvio Berlusconi had previously said that it was holding a “temporary” rise VAT in reserve – in case it became necessary in the future – in its newly-found unavoidability there is been no indication of a fixed termination date, as had been suggested.

The government has reintroduced a ‘solidarity’ tax on incomes, as was part of its original budgetary proposals, but then dropped midway through its passage through parliament. The additional income tax rate of 3% will now be applied on all personal incomes over EUR300,000. It will be effective from January 1, 2011, to December 31, 2013, but will also be able to be extended, if necessary, by the government until the time that Italy’s budget is balanced.

The harmonization of taxes on financial income at 20%, with effect from January 1, 2012, and with the exception of interest received from government bonds, remains, as does the increase to the corporate income tax rate payable by energy companies in Italy, which, previously 6.5% above the normal rate, will now rise by a further 4% for three years.

Details on some of the anti-tax evasion measures have also been firmed up. For example, it will now be possible for the tax authorities to request the bank account details of certain taxpayers and for some of the larger offenders to be jailed. In addition, the corporate tax rate on shell companies (above all, those established to hold assets, such as yachts, that are still operated by their individual owners) will be increased by 10.5% (from the normal 27.5% to 38%). A company which presents three consecutive years of losses will also be treated as a shell company.

While the European Commission has welcomed the new measures announced by the government, as, in its opinion, they “confirm the determination of the Italian authorities to meet the agreed targets of deficit and debt reduction,” there have also been rumblings in Europe that the government should stand ready to introduce further measures, if necessary.

It has been pointed out, however, that the additional 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 already very high Italian tax burdens will be increased even further.

Emma Marcegaglia, the president of Confindustria, the Italian industrial federation, has become particularly scathing over what she sees as a fall in Italy’s credibility. It will not, she has said, “resolve Italy’s problems - if the country’s economy does not grow, it will be insufficient; and the budget does nothing for that growth.”

After the parliamentary vote, she also added that the budget does little for structural reform, is “all taxes”, and will clearly further depress the economy. In meetings with the government, Confindustria continues to demand the formulation of measures that will now re-launch economic growth.

TAGS: individuals | compliance | tax | economics | business | value added tax (VAT) | tax compliance | fiscal policy | law | budget | corporation tax | legislation | tax rates | Italy | individual income tax

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