MNI SOURCES: Italy Govt Plans Tax Cuts, VAT Shake-up

By Silvia Marchetti

     ROME(MNI) - Italy's government is working on a major tax shakeup, which

could include a simplification of income tax, cutting the number of bands and

reducing payments for low-earners while eliminating many deductions, as well as

an overhaul of value-added tax and a new crackdown on tax dodging, sources told

MNI.

     The existing five income tax bands could be reduced to three, with income

up to EUR28,000 a year levied at a 20% rate, the sources said. Currently,

contributors pay 23% on income up to EUR15,000, and 27% from there until

EUR28,000. Another potential measure could be to alter value-added tax rates on

some goods and services, they said.

     Total income tax revenues amounted to roughly E165 billion in 2019,

according to data issued by the Observatory on Public Spending and revenues.

While there are no estimates yet of the cost of any cuts, the coalition

government hopes to compensate for their effect on the fiscal balance by

cracking down on tax dodgers and by reducing deductions and exemptions.

     The European Council has called on Italy to reduce the size and number of

exemptions and preferential fiscal treatment, which currently number roughly 500

and which, according to an Italian parliament report, deprive public coffers of

about EUR61 billion a year.

     --LIKELY DELAY

     A first technical meeting to draft proposals for the fiscal reform is set

to be held on Thursday, but officials have warned a dispute between the small

Italia Viva party and its larger coalition partners, the populist 5-Star

Movement and the centre-left Democrats, could mean parliamentary consideration

of any tax bill is pushed back by months.

     "If we sit down at a table and cooperate constructively, a first draft

could be ready by the end of the month but political tensions at the moment make

that seem quite unlikely," a 5-Star official told MNI.

     Sources at both 5-Star and the Democratic Party source said tax cuts should

mostly benefit low earners and respect constitutional rules according to which

taxation must be progressive. An Italia Viva source noted that the existing tax

bands were unfair on lower owners.

     The tax plan would be more ambitious than the EUR3 billion in cuts passed

in the 2020 budget, benefitting 16 million workers and accompanied by a tax

dodging crackdown including a boost for e-payments. During the coalition

government with the far-right League, which broke down in August, the 5-Stars

opposed their partners proposals for a flat tax.

     When he was both a member of the Democrats and also Italy's premier in

2016, Italia Viva leader Matteo Renzi slashed employee contributions by EUR80 a

month for 10 million lower earners.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MFIBU$,M$E$$$,M$I$$$,M$X$$$,MC$$$$,MT$$$$,MX$$$$]