The path towards the flat tax and the new personal income tax rates
The flag size of the tax reform is the flat tax for everyone within the term of the legislature. The introduction of a single tax rate on the taxable income of natural persons will concern the self-employed, employees and pensioners. However, the flat tax will be preceded by a transitional phase with the reduction of the rates from the current 4 to 3 (the Draghi government had already reduced them since they were 5). In the transitional period, the no-tax area between employees and retirees will also be unified, this too is a stage to arrive at the single personal income tax rate. A note from the Ministry of the Economy confirms that “the tax reform provides for the equalization of the no tax area for employees (8,174 euros) and pensioners (8,500 euros)”. Once the transition phase is over, a single rate will be introduced for all, thus assimilating Italy to eight other European countries. An analysis by the Public Accounts Observatory of the Catholic University of Milan indicates that for now the flat tax is applied in Russia (with a rate of 13%), Estonia (20%), Romania (10%), Bosnia-Herzegovina ( 10%), Belarus (13%), Bulgaria (10%), Ukraine (18%) and Hungary (15%). The launch of the flat tax will also have to respect the criterion of progressive taxation on income, envisaged by the Constitution. A principle that will be guaranteed by modulating the deductions, allowances and deductions, which will be inversely proportional to income. But the exact details will be defined by the implementing decrees.
Reduce the weight of IRES
The income taxation of companies and entities will be reviewed lowering the IRES rate. But provided that – within the two tax periods following the one in which the income was produced – two conditions are met. The first is that a sum corresponding, in whole or in part, to said income is used in investments, with particular reference to qualified ones, and in new hires. The second is that the profits are not distributed to the shareholders or intended for purposes that are in any case unrelated to the exercise of the business activity.
With regards to Irap, the repeal has been confirmed. However, an IRES surcharge will be introduced capable of producing an equivalent revenue, to guarantee the financing of health needs, as well as the financing of Regions with health budget imbalances.
VAT review
With the reform there will be the “rationalization of the number and VAT rates, as well as the regulation of exempt operations, according to EU criteria”. This means, as the government has hinted several times in recent months, that the value added tax can be canceled on some basic necessities.
The baskets of goods and services will also be reviewed to which the relative rates apply, with the aim of achieving “greater homogenization of the VAT treatment for similar goods and services”. Refund procedures will be “simplified and speeded up”. Changes also for other indirect taxes with the “replacement of stamp duty, mortgage and cadastral taxes, special cadastral taxes and mortgage taxes”. All will give way to a “single tax, possibly in a fixed amount”.
Arrangement with creditors for companies
One of the objectives of the reform is to promote a better and less conflictual relationship between the tax authorities and the taxpayer.
The first sign, in this sense, is the decision to eliminate the forfeiture of tax benefits in the event of formal or less serious breaches. In general, there is a reduction in obligations and a rationalization of the declarations, encouraging pre-compiled ones. For small and medium-sized businesses the “two-year arrangement with creditors” is introduced: for tax purposes, the amount agreed for two years is paid and in this way one is protected from subsequent controls. For larger companies, on the other hand, the strengthening of “cooperative compliance” is envisaged, aiming to favor spontaneous compliance through the action of tutoring and dialogue with the administration. Again with a view to configuring a less hostile tax system in the eyes of taxpayers, the Deputy Minister of Economy Maurizio Leo indicates the desire to «give the taxpayer some peace at particular times of the year, such as the months of August and December, in which the letters of compliance, deeds or other documents that can generate difficulties for taxpayers do not arrive”.
On the collection front, the goal is a gradual overcoming of the tax collection role and simplified access to payments of up to 120 installments. The penalties will be reviewed: in the event of non-repeated omitted payments, for example, they will become more proportional to the disputed amount. It is not possible, underlined the government, that in Italy the sanctions “can reach up to 120% and in some cases 240% when in other countries it does not exceed 60%”.
The covers
For a reform like the one outlined in the delegation to the Meloni government many billions will be needed. Based on initial estimates, there could be at least five billion in the transitional phase, i.e. the one that starting next year will reduce the Irpef rates from four to three. While once the flat tax for everyone is introduced, it will take tens of billions. Much will depend on the extent of the single rate. For now, the only clue is the 15% flat tax, already granted to self-employed workers with revenues of up to 85,000 euros. The real point of the reform is how to identify the resources to guarantee the flat tax. In the text of the proxy, reference is made to the revision of the tax expenditure: more than 600 items including deductions, deductions and various reliefs which translate each year into around 165 billion of less revenue.
The Deputy Minister of Economy, Maurizio Leo, confirming that already next year there will be 3 rates he specified: «This is the objective, then with the numbers I would always be cautious. The delegation does not dictate precise numbers, then there will be the implementing decrees and with the resources and without budget overruns, coverage will have to be given. A reform module will come into force from January 2024: we will find the necessary resources and coverage”. The government’s bet is that tax cuts will support GDP growth and, therefore, revenues, thus financing part of the reform.