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Italy puts ‘too much of the tax burden on employees’, says auditor

The Local Italy
The Local Italy - [email protected]
Italy puts ‘too much of the tax burden on employees’, says auditor
Photo by ANDREAS SOLARO / AFP

Italy’s state audit court on Friday recommended changes to the tax system, saying medium-income workers are paying too much tax.

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Announcing the findings of its annual public finance review, the state auditor (Corte dei Conti) recommended shifting some of the tax burden from income tax (Irpef) to VAT (IVA).

It said the "proliferation of differentiated tax regimes" had “led to taxes being concentrated on employed labour and pensions, especially on medium incomes".

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The report recommended "a partial shift of the levy from personal income tax to VAT".

The report looked at “the efficiency and fairness of the tax system”, focusing on levels of income tax with respect to GDP and in connection with the “persistent, significant level of tax evasion” in the country, as the government looks at how to over the costs of rebuilding following the pandemic,

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The base rate of income tax (Irpef) in Italy is between 23% – 43% of gross earnings for employees.

All workers must also pay INPS (‘Istituto nazionale della previdenza sociale’) social security contributions, which work out at 9-10% for employees depending on earnings, while for the self-employed the normal rate is 25.72% of taxable income.

Flat tax rates

Italy has introduced lower tax rates of between 5-15% for freelancers, intended to boost commercial activity from individuals and small businesses.

The flat-rate tax scheme simplifies accounting and means that, in broad terms and depending on your situation, freelancers could pay somewhere between just 5% and 15% tax on earnings of up to €65,000 annually.

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Someone with an employment contract and a taxable income in the range of €55,000-€75,000 would instead be subject to an income tax rate of 41 percent.

More than 700,000 workers in Italy moved from Irpef to the flat tax rate in 2019, the first tax year in which the rate was applied, according to new financial reports published this week.

In that year, the average income of self-employed workers in Italy increased by +25.4% and businesses saw their incomes rise by +6.8%, according to analysis of 2020 tax returns from the Department of Finance.

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