Greater Tax Powers Granted To Italian Local Authorities

October 8, 2010 Taxation in Italy

TREMONTI GiulioLocal authorities in Italy are set to receive greater tax powers, after a new ruling was passed by the Government granting them ability to retain some tax collections and alter their local business tax rates.

In an attempt to improve efficiency in tax collections and revenue expenditure, the Italian Government approved new legislation that will grant local authorities greater tax powers. The new legislative proposal was announced by Giulio Tremonti, Italy’s Minister of Economy and Finance, on October 8th at a press conference, in Rome.

If approved by the Italian Parliament the new “federalism measures” will grant the country’s 20 regional authorities the power to retain a portion of the value-added taxes collected in their respective region. Regional authorities will also have the power to reduce, or even nullify, their local corporate tax rate, which is currently set at 3.9 percent across the country. However, all businesses will still be subjected to a corporate tax of 27.5 percent, collected by the federal Government. The retained earnings will be used by local authorities to fund their public services, including health care and law enforcement.

While speaking at the press conference Giulio Tremonti said that the new laws would not raise overall national tax revenues, however it should increase efficiency, and remove disparities in public funding between the prosperous northern regions and Italy’s economically depressed southern states. According to the Italian Government’s plans devolving tax collection and revenue expenditure powers to local authorities will imbibe officials with a greater responsibility, ultimately leading to efficiency in spending.

The new laws will be phased in over the next seven years. It is planned that the new system will not burden states with any extra mandatory expenditure. The Minister added that once the “federalism measures” are fully implemented, the Government would undergo an overhaul and simplification of the national tax system.

Photo by Giuseppe Nicoloro