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27 October 2010

Complexity Encourages Italian Tax Evasion

An Italian taxpayer group has suggested that Italy's high taxes and mind-numbing bureaucracy are to blame for growing rates of tax evasion and has called on the government to bring forward simplification proposals as a matter of priority.

According to a survey conducted by the Association of Italian Taxpayers (AIT), which has monitored the incidence of tax evasion in Italy over a number of years, at least three out of four taxpayers have not declared annual incomes which agree with the expectations of the Italian Revenue Agency’s ‘income calculator’ (redditometro).

In fact, applying the calculations of the ‘redditometro’, which reconstructs taxable incomes by means, for example, of spending habits and lifestyles, the 25% of taxpayers who did make declarations up to the amounts expected by the Revenue Agency was reached in 2008. It is now estimated that, in 2010, it will have dropped to 16.7%.

According to the figures given by the AIT, in the first nine months of 2010, the level of tax evasion in Italy grew by more than 9%, and the total amount of tax revenues lost to the Revenue Agency has now reached around EUR156bn (USD218bn) per year.

Vittorio Carlomagno, the AIT’s President, has linked the incidence of tax evasion with the high rates of both corporate and individual income taxes in Italy. He believes that those rates need to be reduced by at least 5% to have a significant effect on the avoidance of taxes. He has also called for an improvement to public services, a reduction in wasteful public expenditure and reform to tax compliance regulations. He added that tax evasion has become the “sport most practised by Italians”.

AIT has calculated that, every year, 62,500 new tax administration measures are issued, putting Italy in the lead by some way in the European classification for fiscal bureaucracy. It has emerged that, in the last year alone, tax regulations in Italy have increased more than twice compared to other countries in Europe.

Carlomagno expressed the opinion that it is impossible for a foreign company to establish a new plant in Italy, if it wanted to be assured of its future tax liabilities. He said that the Italian tax authorities change the regulations many times, even during the same financial year, so as to place in difficulty even those companies that do wish to fulfil their tax obligations.

He concludes that, in addition to a reduction in direct taxes, real reform in Italy would therefore begin with a simplification of the tax system, together with the establishment of a more equal relationship between the tax authorities and the taxpayer.

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