With just days before the scheduled one percent hike to Italy’s value added tax rate, the nation’s Cabinet has agreed that the measure should be shelved until at least September.
It has been newly confirmed that the rate will remain at 21 percent for at least three months to allow the government to consider alternative measures, likely to be included in a package of austerity measures being drafted for inclusion in next year’s Budget penciled in for October. The headline rate was due to rise to 22 percent from July 1, 2013.
The Government anticipates that shelving the measure will cost the state revenues worth around EUR1bn (USD1.3bn); a quarter of the measure’s anticipated full-year impact.
If proposals to abandon the rate hike entirely, and to also remove local property taxes on first residences, are successful, the Italian Government must garner support for replacement revenue-generating measures worth approximately EUR8bn per annum to satisfy the European Union that it is making timely progress on debt reduction under the Excessive Deficit Procedure.
The decision to defer, and potentially abandon, the value-added tax increase, bodes poorly for the industrial sector’s lobbying efforts to achieve a reduction in the tax burden on companies and labor, which it argues is necessary to buoy Italy’s international competitiveness and revive the nation’s moribund economy.