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Italian Small Businesses Fearful Of VAT Rate Hike
June, 04th 2013

CGIA of Mestre, the Italian association of sole traders and small businesses, has warned again of the effect of the further value-added tax (VAT) rate hike, expected next month, on family finances, domestic consumption and small businesses in Italy.

An increase in the country's current 21 percent VAT rate to 22 percent on July 1 this year still remains from the program, agreed by former Italian Premier Mario Monti with the European Union, of balancing Italy's fiscal deficit by the end of 2013. While the present Government has expressed the intention of avoiding the rate rise, it is not yet certain that it will find the additional revenue or reduced spending to be able to do so.

A VAT rate rise is expected to have the effect of further reducing domestic consumption in an Italian economy that is already in recession. CGIA had already calculated that the effective reduction in Italian family incomes will be substantial – equivalent to EUR2.1bn (USD2.7bn) for the remainder of 2013 and EUR4.2bn in 2014.

CIGA has now pointed out that when the most recent 1 percent VAT rate increase was made in 2011, VAT revenue, between mid-September 2011 and December 2012, actually decreased by EUR3.5bn. While, it stated, the depressed Italian economy had obviously influenced the revenue outcome, the increase in the rate had certainly contributed to a fall in consumption, and therefore also tax collected.

Giuseppe Bortolussi, CIGA's Secretary said that "that result should serve as a warning. From the beginning of the economic crisis to the end of 2012, Italy's gross domestic product has decreased by 7 percent and household spending by 5 percent – in absolute terms, an average decrease in spending of around EUR3,700 per family. If we do not forego the VAT increase expected in a month, we run the risk of penalizing further the financial position of families, and that of small businesses and the self-employed who exist almost exclusively because of domestic consumption."

Italian VAT is 40 years old this year, and Bortolussi added that, if the rate rise is allowed to happen, its anniversary will be marked by Italian consumers suffering the highest rate, at 22 percent, within the principal countries of the euro area.

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