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: What is Italy doing to cut the rising cost of living?

Amid soaring inflation and price rises, the Italian government has announced new measures to help families and businesses keep costs down. Here's what you need to know.

EXPLAINED: What is Italy doing to cut the rising cost of living?

Italy approved a much-anticipated aid decree on Thursday, August 4th, bringing a new round of state funding intended to tackle the country’s most critical issues: from the rising cost of living and sky-high inflation to the energy and supply crisis. 

READ ALSO: Fuel tax cut and help with energy bills: Italy approves inflation aid package

The ‘aiuti bis’ aid package, worth around 17 billion euros ($17.4 billion), likely marks the last major act by outgoing prime minister Mario Draghi before an early general election next month.

The funding is seen as badly needed after inflation hit 8 percent in Italy in June – the most severe spike the country has experienced since 1976.

After weeks of speculation about exactly which measures may or may not be included in the decree, we now know it contains everything from an extension to the fuel duty cut to more help with energy bills for those on lower incomes.

Here’s what you need to know about the latest measures intended to keep the cost of living under control.

Extension to fuel duty cut 

The current discount on fuel duties is to be extended again to September 20th, though the value of the discount will drop from 30 to 25 cents. 

The discount was recently extended to August 21st but the government decided to further prolong the incentive in a bid to ease the blow that record fuel prices have dealt to consumers and businesses.

The cut was initially introduced as far back as March when the average prices at the pump for petrol and diesel both exceeded the two-euro mark.

Help with energy bills

Measures introduced in the first half of the year to help lower-income households and vulnerable people pay rising energy bills will be extended under the new decree.

It extends an existing government discount on gas and electricity bills for a further three months, until the end of 2022, as well as reducing system charges.


Italy’s tax on the ‘excess profits’ of energy companies has meanwhile been extended to June 2023 after the government reportedly received fewer payments than expected.

Tax cut for employees

Workers earning a gross income of under €35,000 are eligible for a two percent tax saving, amounting to a small monthly ‘pay rise’ until the end of this year.

“Already in the budget law we reduced social contributions by 0.8 percent; for the second half of the year this reduction goes up to 2 percent, as we’re now adding 1.2 percent”, said Economy Minister Daniele Franco at a press conference on Thursday.

As the tax relief lasts until the end of the calendar year for a six-month period, the July deduction will be retroactive.

New aid measures announced on Thursday are hoped to boost Italy’s consumer spending power as the cost of everyday goods rises. Photo by ANDREAS SOLARO / AFP

Those earning €35,000 can expect to save around a further €30 per month (1.2 percent of a monthly salary of €2,692 – most Italian salaries are paid out over 13 rather than 12 months to give employees a tredicesima Christmas bonus).

To find out how this may apply to you, it’s advisable to speak to an accountant or your local Italian tax agency (Agenzie delle entrate) office.

More funding for mental health treatment

The new decree will also enhance the existing ‘psychologist bonus’ (bonus psicologo) by allocating an additional 15 million euros to the measure. This will bring the total amount of funds available for the bonus to 25 million euros. 

The bonus was officially introduced at the end of July to help make mental health services more affordable, amid a pandemic-induced crisis in Italy.

All individuals with an Isee (a calculation of relative household income and wealth) lower than 50,000 euros will be eligible to receive a 600-euro voucher, which they’ll be able to use when seeing professionals listed on Italy’s official register of psychologists.

See more information about claiming the bonus in a separate article here.

Discount on public transport tickets

The government will allocate a total of 101 million euros to funding its ‘transport bonus’ (bonus trasporti); 22 million more than the original amount.

The bonus takes the form of a one-time 60-euro discount to be used on the purchase of monthly or yearly tickets for local transport services.

It will be available from September 2022 to all pensioners, students, and employees with an Isee of up to 35,000 euros.