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Italy Should Look To Bring Down Tax Rates: IMF

by Ulrika Lomas, Tax-News.com, Brussels

19 June 2014


In the concluding statement of its 2014 Article IV consultation with Italy, the International Monetary Fund (IMF) said that, with the economic recovery remaining fragile, "bold and quick policy actions" are required to secure lower individual and corporate income tax rates.

The IMF welcomed that "following several years of difficult adjustment, Italy has achieved one of the highest primary surpluses in the euro area," but said "more needs to be done to bring down the high level of public debt and strengthen the resilience of public finances."

It said, however, that fiscal policy "needs to strike a delicate balance between setting the debt ratio on a downward path while avoiding excessive tightening that derails the fragile recovery."

While it called the approval of the delega fiscale (the tax reform law granting special powers to the Government to introduce a series of measures in 2014) "a welcome framework for simplifying and improving the tax system," the IMF said the Government's new priority should be growth-friendly fiscal policies that support the Italian economy by lowering tax burdens.

It said that "greater savings from the spending review and lower tax expenditures would allow reductions of labor taxes to be expanded and made permanent, and permit a higher [deduction] allowance for corporate equity returns to stimulate investment. Stronger efforts to curb tax evasion would also free up more savings for rebalancing and raise the fairness of fiscal adjustment."

Last, the IMF recommended reducing the gap between the taxation of public and private securities. From July 1, 2014, withholding tax rates on interest, dividends, and capital gains on private securities will increase to 26 percent from 20 percent, while the tax rate on government debt will remain at 12.5 percent. It said that bridging the gap would encourage more investment in capital markets, while also supporting more equity investment in Italian corporates, and also reduce the current reliance on bank credit.

TAGS: individuals | capital gains tax (CGT) | tax | investment | business | law | capital markets | equity investment | International Monetary Fund (IMF) | corporation tax | tax rates | withholding tax | Italy | dividends | tax reform | individual income tax

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