Italy tax burden higher than Norway: OECD

Italy’s tax burden is higher than that of Norway, although it decreased slightly last year, a new OECD report has found.

Italy tax burden higher than Norway: OECD
Italy's tax burden is well above the OCED average. Money photo: Shutterstock

The tax burden in Italy was 42.6 percent in 2013, a fall of 0.1 percentage points on the previous year, the OECD’s Revenue Statistics report found.

Across the 34 OECD countries the tax burden increased by an average 0.4 percentage points last year. But while Italy bucked the overall trend, the country’s tax to GDP ratio is still well above the 34.1 percent average.

While Italians face higher than average taxes on their personal incomes and social security contributions, revenues from corporate income and goods and services are lower than in other countries.

Looking back to 2012, Italy’s tax burden was the fifth highest in the OECD, behind Denmark, France, Belgium and Finland. At the time, Italy’s 42.7 percent tax burden topped all other OECD countries including Sweden and Norway (both 42.3 percent).

Last year Sweden's figure increased to 42.8 percent, while Norway's decreased to 40.8 percent.

The Italian government had set aside €4.5 billion in its 2015 budget to reduce the country’s tax burden, although plans were scrapped after criticism from the European Commission. The EU has given Italy until March to draw up new plans to reduce its budget deficit, or risk facing penalties.

READ MORE: EU gives Italy until March to fix budget

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Italy to cut income tax for lower earners

Italy will drop its income tax bands from five to four and reduce tax rates for those on lower incomes under an agreement reached by key figures in the Italian government on Thursday.

Italy's finance minister Daniele Franco has reached an agreement with the government’s majority parties to cut income tax for lower earners.
Italy's finance minister Daniele Franco has reached an agreement with the government’s majority parties to cut income tax for lower earners. Andreas SOLARO / AFP

Going forward, personal earnings of between 28,000 and 50,000 euros will be taxed at 35 percent in Italy, down from the current rate of 38 percent.

Taxes on earnings between 15,000 and 28,0000 euros will be reduced from 27 percent to 25 percent.

The 41 percent tax band for earnings between 55,000 and 75,000 euros will be abolished altogether, with all income over 50,000 euros now set to be taxed at the top rate of 43 percent.

READ ALSO: EXPLAINED: How Italy’s proposed new budget could affect you

Yearly incomes below 15,000 euros will continue to be taxed at 23 percent.

The agreement was reached as the result of negotiations between Italy’s Economy Minister Daniele Franco and representatives of the majority parties in the Italian government over how to distribute the 8 billion euro tax cut provided for in Italy’s 2022 Budget Law.

Under the terms of the agreement, approximately 7 billion euros will go towards overhauling Italy’s personal income tax, or ‘IRPEF’, though these reforms.

READ ALSO: The rules and deadlines for filing Italian taxes in 2021

The remaining one billion will be used to eliminate the regional production ‘IRAP’ tax on sole proprietors and the self-employed.

The so-called ‘Bonus Renzi’, introduced by former Italian prime minister Matteo Renzi in 2014, which initially awarded an 80 euro and later a 100 euro tax bonus to lower earners, will be scrapped altogether.

Tax experts estimate that the reforms are likely to translate to average yearly savings of 100 euros for those on a 20,000 euro annual salary; 300 euros for those earning 30,000 euros per year, and around 600 for those receiving 40,000 euros per year, according to the Italian news daily Corriere della Sera.