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Italy to present framework for tax reform promised to EU

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By Reuters
Italy to present framework for tax reform promised to EU
Italy to present framework for tax reform promised to EU   -   Copyright  Thomson Reuters 2021

By Giuseppe Fonte

ROME – The Italian government said it will present a bill on Tuesday setting the framework for a broad tax reform promised to the European Union, overcoming political tensions in Prime Minister Mario Draghi’s coalition.

The bill, aimed at increasing employment among young people and women, will simplify the system, combat evasion and eliminate numerous “micro-taxes” which have little benefit for state coffers, according to a draft seen by Reuters.

However, the timeline is long. After it is approved by parliament it must be implemented within 18 months, the draft spells out.

The bill was initially promised by the end of July as part of Rome’s Recovery and Resilience Plan (PNRR).

“The tax reform is among the key elements in the PNRR to tackle the structural weaknesses of the country and constitutes an integral part of the recovery we aim to trigger with the help of EU funds,” says a government document accompanying the bill.

The main bone of contention in the government was a proposal championed by the Treasury to update the taxable value of real estate, which is often far below real market values.

This change has been recommended to Italy by the European Commission.

However, lawmakers from the right-wing League and Silvio Berlusconi’s conservative Forza Italia, key coalition parties, feared it would result in higher housing levies for many taxpayers.

To overcome their resistance, the draft stipulates that the government will not change current taxable real estate values before 2026.

However, the League still appeared unsatisfied on Tuesday, and its ministers did not participate at the start of the cabinet meeting called to approve the bill, sources said.

According to the draft, Italy also plans to align rates of taxation on financial investments with corporate income tax over the medium term.

The tax rate on financial investments, except for government bonds, is currently higher than tax on corporate income (Ires).

The government’s latest budget targets presented last month contain leeway for additional spending of 1.2% of national output, or more than 22 billion euros ($25.52 billion) next year.

A big part of this sum will be used to fund tax cuts in the fiscal reform, a government source said.

($1 = 0.8622 euros)