Italy's tax evasion above expected and rising, Treasury report shows

Italy's Tax Evasion Soars Above Expectations, Treasury Report Reveals

Rising Tax Evasion and Government Response

By Giuseppe Fonte

ROME, Oct 6 (Reuters) - Italy's tax evasion is higher than previously estimated and on an upwards trend, new government data shows, raising questions about Rome's ability to tackle a chronic problem as it seeks to keep its strained public finances in check.

Latest Treasury Report Findings

According to a report by a Treasury-appointed commission, unpaid taxes and social contributions rose by more than €7 billion ($7.87 billion) in 2023 from 2022, bringing the total to between €107.9 billion and €112.8 billion.

Italy releases its estimates on tax dodging with a three-year lag so that if evasion is shown to be falling, governments cannot spend revenue that may prove temporary.

Public Debt and Fiscal Policy

With a massive and rising public debt seen peaking at 138.5% of gross domestic product next year, Rome is aiming to pursue a prudent budget policy amid rising borrowing costs.

Government Strategies and Policy Shifts

PM Meloni's Cooperative Approach

PM MELONI FAVOURS COOPERATION OVER CRACKDOWNS

Since taking office in 2022, Prime Minister Giorgia Meloni has taken what she calls a cooperative approach with taxpayers, arguing that previous crackdowns against evaders had not worked.

Her first budget offered offenders 12 different tax amnesties, reducing or eliminating penalties if they settled their debts to the tax man.

Trends in Tax Evasion

The report showed tax evasion was on the rise between 2021 and 2023, though it added that the increase in absolute cash terms may partly reflect higher taxable income, driven by the post-COVID-19 economic recovery and rising inflation in recent years.

Measuring Tax Evasion: Key Indicators

Government-appointed experts therefore recommended using as the proper gauge for analysis the ratio between the amount of unpaid taxes and total taxes owed.

Using this criterion, Italy's propensity to evade taxes fell on an annual basis by 0.2 percentage points in 2023 to an estimated 17.3-17.5%.

Between 2019 and 2023, the indicator improved more decisively by around 2.5 percentage points.

Propensity to evade value added tax rose to 20.4% in 2023 from 19.4% the year before.

"Looking at the longer time frame, there is a gradual decline in the share of the informal economy in the national economy," the report said.

Revised Estimates and Policy Adjustments

However, Italy revised upwards its estimates of unpaid taxes and security contributions for the 2019-2022 period compared with the figures published in the previous report released a year ago.

Among moves to soften past crackdowns on evasion, Meloni has raised a limit on cash payments to €5,000 euros from €1,000.

She was forced to backtrack on a proposal to cut sanctions against shopkeepers refusing to accept digital payments, following criticism from European Union authorities.

Currency Note

($1 = 0.8895 euros)

(Editing by Gavin Jones)