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Controversial Tax Measures To Delay Italian VAT Hike

Monday, 01 July 2013   (0 Comments)
Posted by: Author: Ulrika Lomas
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Author: Ulrika Lomas

A new decree, published in the Italian official gazette on June 28, has revealed the disparate tax measures the Italian Government has had to take in order to find the EUR1.15bn (USD1.5bn) necessary to finance the three-month delay to October 1 in the scheduled one percent increase to Italy's value added tax rate (VAT).

Given the requirement for Italy to continue to respect its fiscal deficit reduction commitment to the European Union, and with no further public spending reductions apparently available in the short-term, the Government had to resort to two tax measures to avoid the VAT hike from 21 percent to 22 percent from July 1.

The first involves the treatment of electronic cigarettes, which contain nicotine and are used as a substitute for ordinary cigarettes, as a tobacco product for excise purposes, and the imposition on them of a 58.5 percent tax on their sale price; while the second entails a change to the payments of both individual and corporate income taxes.

For example, for those with individual income tax to pay that has not been withheld from monthly wage packets, such as sole traders, artisans and professionals, the final payment of tax on account due on November 16 must mean, this year, that a taxpayer has paid the equivalent of 100 percent of the tax paid in the previous year (rather than 98 percent).

On the other hand, a company will have to pay 101 percent on account (or 110 percent for a financial institution) of the tax it paid in the previous year by the 11th month of its financial year in course on December 31, 2013 (i.e. November for those with companies that have the same financial year as the calendar year).

Premier Enrico Letta insisted that those measures do not represent any "increase in taxes," and that those who said they do "are telling lies."

However, while the increased regulation and taxation of electronic cigarettes aroused the ire of that small sector, it has been suggested that the changes to tax payments on account will extract substantial cash out of the finances of all types of businesses in a recessionary period where their cash flow is already extremely tight, and they have attracted criticism, particularly by lawmakers from the center-right parties in the government coalition.

Subsequently, the Government indicated that it wants to examine, in the relevant parliamentary committees as the decree is debated, the possibility of finding further (or substitute) funding so that the VAT rate increase can be delayed for a further three months, to January 1, 2014 – allowing for it to be revisited within the budgetary package expected for October this year.

The Government has already delayed the interim local property tax payment for 2013 until September 16, promising reform of the tax by August 31. Commenting on that temporary measure, and the ones now being taken to delay the VAT hike, the Italian Minister of the Economy Fabrizio Saccomanni said that the Government now needs to rethink the country's taxes in order to "substitute them with a framework less burdensome for employers and employees."



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