Italy Warned On Effect Of Upcoming VAT Rate Hike
23 May 2013
Posted by: Author: Ulrika Lomas
Source: Ulrika Lomas, (Tax-News.com, Brussels)
CGIA of Mestre, the Italian association of sole traders and small businesses, and Confcommercio, the federation representing Italian small and medium-sized enterprises, professionals and sole traders, have both warned of the effect on family finances, domestic consumption and the continuing economic recession in Italy, of another value-added tax (VAT) rate hike.
Within the objective, agreed with the European Union, of balancing Italy's fiscal deficit by the end of 2013, the former Italian Prime Minister Mario Monti added an automatic further increase in the normal VAT rate as a fallback – to be used if it was foreseen that the balancing of the budget would not be reached in time.
Out of that fallback, an increase in the country's current 21 percent VAT to 22 percent still remains programmed for July 1, 2013, and Confcommercio has calculated that it would mean additional average annual taxation of EUR135 (USD174) for a family of three, as the VAT hike would affect 70 percent of all consumer goods purchased.
While it would thereby have the effect of further reducing domestic consumption in an Italian economy that is already in recession, it could also mean, Confcommercio added, the disappearance of 26,000 more Italian retailers.
Furthermore, in CGIA's opinion, if the Government does not succeed in avoiding the VAT rate rise, the effective reduction in Italian family incomes will be substantial – equivalent to EUR2.1bn for the remainder of 2013 and EUR4.2bn in 2014. Coincidentally, CGIA pointed out, EUR2.1bn is also, more or less, the same amount of revenue as the interim payment of the local property tax on first residencies that the Government has recently postponed from June to September 16, awaiting a comprehensive reform of property taxes.
In a newspaper interview, the President of Confcommercio, Carlo Sangalli, asked the Government to "avoid another disaster over consumption." He explained that internal demand, which, between investment and consumption, constitutes 80 percent of the country's gross domestic product, is stalled, and that increasing the VAT rate would "signify a final, lethal, blow." He concluded that "for businesses in crisis, a positive signal is needed, and that signal is not there at the moment."