Italy plans to scrap VAT on bread and pasta amid cost of living crisis

Italy’s outgoing government may slash sales tax on meat and fish and cut it altogether on bread and pasta under plans to boost spending power, ministers said.

Italy plans to scrap VAT on bread and pasta amid cost of living crisis
Bread and pastries are among the items Italian shoppers are now paying more for. Photo by Miguel MEDINA / AFP

Italy’s economy and finance ministry is working on plans to keep the spiralling cost of living in check by scrapping IVA (sales tax, or VAT) on bread and pasta products, and lowering it from 10 to 5 percent on other foodstuffs.

Deputy Economy Minister Laura Castelli told Radio 24 on Monday the measure was likely to be included in the government’s so-called July aid decree, aimed at managing the cost of living crisis, which is currently being finalised.

“It is a concrete plan and possibly an alternative or addition to [extending] the 200 euro bonus,” Castelli said.

“The costs of both measures are being evaluated now.”

A joint statement from the undersecretaries for the economy and for agricultural, food and forestry policies read: “Removing VAT on basic items such as bread, pasta, milk, fruit and vegetables, and reducing VAT on products such as meat and fish from 10 to 5 percent, means safeguarding purchasing power particularly of those on lower incomes who are therefore more affected by price increases in the shopping cart.”

READ ALSO: How to claim Italy’s €200 cost of living bonus

The cut would reportedly be paid for using billions of euros from a recent increase in VAT revenue, due to the rising price of many consumer goods.

Economy and Finance Minister Daniele Franco told a cabinet meeting on Tuesday that Italy’s debt is expected to be about 14.3 billion euros lower than expected in 2022 after a major increase in tax revenues in the first six months.

With inflation now at eight percent – the highest since 1986 – the majority of this money is to be used to mitigate the impact on households and businesses under plans drawn up before the resignation of Prime Minister Mario Draghi last week.

READ ALSO: Italy faces September elections after Draghi resigns

There is doubt about whether the government will now be able to go ahead with some planned reforms, as it stays in place in a caretaker capacity until early elections in September.

But the financial measures included in the July ‘aid decree’ should not be affected, according to reports.

The plan to slash VAT on food has particularly broad cross-party support in the coalition government – with several parties now laying claim to the policy ahead of the upcoming election campaign.

The tax cut is not yet confirmed, however.

It is set to be approved by the end of July, along with other cost-saving measures which include prolonging the tax cut on petrol and diesel again after it was last week extended until August 21st.

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EXPLAINED: Why people in Italy might have to carry more cash from now on

Italian retailers will no longer face fines for refusing card payments on amounts lower than €60, after the government put the brakes on a recent push towards electronic payments.

EXPLAINED: Why people in Italy might have to carry more cash from now on

Italy’s new budget bill is set to add yet another controversial chapter to the country’s long and troubled history of card payment laws.

Under Italy’s new budget law, retailers will no longer be fined for refusing card payments for smaller amounts – a controversial move that is expected to have a knock-on effect for shoppers.

READ ALSO: Key points: What Italy’s new budget law means for you 

Fines for retailers refusing card payments on amounts lower than €60 will now be suspended until at least June 2023, according to a clause included in the text of the 2023 budget law published to media on Wednesday.

As set out by the bill, the six-month suspension will allow the newly created Ministry of Enterprises and Made in Italy to “establish new exemption criteria” and “guarantee the proportionality of the given penalties”.

And, though it isn’t yet clear what new exemptions the government is currently considering nor what exactly is meant by “proportionality”, what’s certain is that residents who had started to make more purchases by card will now have to repopulate their pockets with some good old banknotes because businesses – from taxi drivers to cafes and bars – might not accept card payments for small amounts.

Fines for businesses caught refusing card payments had been introduced by Draghi’s administration back in June 2022, with retailers liable to pay “a €30 administrative fee plus four percent of the value of the transaction previously denied”, regardless of the amount owed by the customer. 

Euro banknotes in a wallet

Under Italy’s new budget law, retailers will no longer be forced to accept card payments for transactions under €60. Photo by Ina FASSBENDER / AFP

The measure angered retailers who lamented having to pay hefty bank commissions on every electronic transaction – some business owners even went as far as openly defying the law and organised themselves into a protest group (Comitato No Pos, roughly meaning ‘Anti-point-of-sale committee’). 

Given the government’s new legislation, it seems like their efforts might just have paid off. 

But, while many business owners will no doubt be happy with the suspension, others have already raised doubts about the potential ripple effects of the government’s move.

Aside from shoppers having to carry more cash than they’re currently used to, many political commentators are warning that the suspension might be a “gift to tax dodgers” in a country where, according to the latest available estimates, tax evasion costs state coffers nearly €90 billion a year.

The same was said about another of the government’s recent changes: raising the cash payment limit from 2,000 to 5,000 euros.

READ ALSO: What’s changing under Italy’s post-pandemic recovery plan? 

A previous government led by Giuseppe Conte had introduced several measures aimed at encouraging the use of electronic payments, most of which have since ended or been rolled back.

The introduction of fines for businesses refusing card payments was one of the financial objectives set out within Italy’s Recovery Plan (PNRR), which expressly refers to the fight against tax evasion as one of the country’s most urgent priorities. 

It is therefore likely that the new cabinet will at some point have to explain the latest U-turn on Recovery Plan policies in front of the EU Commission.