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Italy Finds Difficulty In Avoiding Property Tax, VAT Hike

18 June 2013   (0 Comments)
Posted by: Author: Ulrika Lomas
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Author:  Ulrika Lomas

While the coalition Italian Government agreed, on June 15, to certain policies it will put forward to improve tax administration, together with minor tax changes, the pressing problems of the value added tax rate increase, due on July 1, and the removal of local property tax on first residences, remain unresolved.

The policies the Government intends to pursue that have been announced to date are mainly tax administration reforms which will largely reduce the incidence of tax authority actions on both businesses and individuals, and will most probably be followed in the next few days by further tax simplification measures.

The latest measures include an extension of the additional 10.5 percent "Robin Hood" tax to energy companies by reducing its thresholds to those companies with an annual revenue greater than EUR3m (USD4m), previously EUR10m, and a taxable income of at least EUR300,000, previously EUR1m.However, given the requirement for Italy to continue to respect its fiscal deficit reduction commitment to the European Union, the possibility of finding the funds – said to be a total of EUR8m, EUR4m for each – to cancel both the one percent VAT hike and IMU from first residences is creating much argument within the governing parties.

The Government has already delayed the interim IMU payment for 2013 until September 16, allowing for reform of the tax by August 31 this year, but Silvio Berlusconi, the leader of the Italian center-right, has maintained his call for IMU reform, first aired during the recent elections, and is also supporting warnings from others, particularly businesses in retail and commerce, of the effect on consumer demand of raising the normal VAT rate during a period of continuing economic recession.

On the other hand, Flavio Zanonato, from the center-left and the present Minister of Economic Development, stated categorically in a television interview that the funds for the most pressing problem, to stop the VAT rate increase, currently do not exist.

Fabrizio Saccomanni, Minister of the Economy, also gave the same message, but has held out the possibility that the Government could delay the increase for three months to obtain a breathing space for it to make further efforts to reduce public spending. With regard to IMU, it has also been suggested that the cost of its reform could be reduced by only cancelling its imposition on lower-value homes.

However, at the same time as the Government prevaricates publicly over property and indirect taxes, it is also receiving continual warnings from the industrial sector that the lack of investment and economic growth in Italy will continue, unless the increasing onerous corporate and labor tax burdens can be reduced as soon as possible. However, Saccomani has had to reiterate that, given the resources being demanded for the other measures, direct tax reduction will only be possible at a later date.


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