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Further Call For Indirect Tax Switch In Italy

Monday, October 17, 2011

With the government’s own proposals in danger of being overshadowed by political events, the President of Assonime (the association of Italian limited companies), Luigi Abete, has suggested a revenue-neutral tax reform package to encourage growth back into the Italian economy.

In essence, he proposed to a Senate committee that tax revenue to cover the necessary reductions to the currently high Italian direct tax burden on individuals and companies, which will rise to almost 45% of gross domestic product (GDP) in 2013-14 after the recent ‘anti-crisis’ measures, and is said to be stifling economic growth, could be found by raising value-added tax (VAT) collections and from the increased taxation of individual assets.

In the opinion of Assonime, to encourage economic growth back to the Italian economy, it will be necessary to make a significant shift – of around 2% of GDP – away from the tax burden on the “productive sector” (business and their employees) and towards indirect and asset-based taxes, over a five-year span.

The proposed increase to VAT revenue, with the application of the normal tax rate to all goods and services, with very few exceptions (such as housing and absolute necessities), could raise up to EUR25bn (USD34.3bn), and would be utilized to provide direct benefits to the less affluent (to compensate for the increased VAT they would pay) and for a reduction in the bottom rate of individual income tax to 20% (from 23%).

Abete also proposed that, to reduce the corporate income tax to 20% (from 27.5%) and, at the same time, eliminate all of the tax differentials across various industrial sectors, a small wealth tax should be introduced on individuals’ assets.

He suggested that the new tax should be imposed at a rate between 0.1% and 0.2% on all assets, including first homes, government bonds, cash deposits and all forms of “companies” (funds, property companies and trusts). With a minimum threshold before payment, he said that it would not be unrealistic to expect some EUR12bn in annual revenue from such a new source.

Finally, he pointed out that any increased tax revenue deriving from the further measures that are being taken, and are to be taken, against the high level of tax evasion within the Italian economy should be used primarily to reduce the tax burden on those taxpayers who regularly pay their taxes, and not on reducing the country’s fiscal deficit or public debt.