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MONEY

KEY POINTS: The tax changes in Italy to know about in 2023

From a proposed 'flat tax' to VAT, Italy is planning a raft of changes that you should be aware of as part of longer-term reforms. Here's a quick overview.

KEY POINTS: The tax changes in Italy to know about in 2023
Photo by ANDREAS SOLARO / AFP

The Italian government is preparing a set of major reforms to the tax system by 2027, and the first changes set to come in to force over the next two years were announced on Thursday, March 16th.

The existing tax system in Italy, which has been in place since 1971, is often criticised for being overly complex and for placing too high a tax burden on employees and businesses – one of the factors regularly blamed for Italy’s longstanding problem with sluggish economic growth.

READ ALSO: Flat tax for all? Italy announces plan to overhaul tax system

Economy Minister Giancarlo Giorgetti has said the planned reforms will reduce this tax burden “gradually” and make investment and commercial activity in Italy “more appealing”.

Few details of the reforms were immediately given on Thursday, but here’s a look at what we know so far about the initial changes coming in 2023 and how they could affect you.

‘Flat tax’ and income tax changes

The government has confirmed it is planning changes to the way the amount of personal income tax you have to pay is calculated, and that it will push ahead with longer-term plans to bring in a so-called flat tax, which was one of the flagship promises made by the coalition of right-wing parties which took power following September’s general elections.

The coming reforms will initially reduce the number of income tax (Irpef) brackets from four to three, with the ultimate goal of a single tax rate for everyone by 2027 – when the current government’s term in office is set to end.

Irpef (Imposta sui Redditi delle Persone Fisiche) is the main income tax in Italy and applies to all employees, many self-employed workers (regular partita Iva holders, but not those on the flat tax rate) and pensioners.

This tax is the cornerstone of Italy’s fiscal system. It injected just shy of 206 billion euros into state coffers in 2022, accounting for around 38 percent of the country’s total tax revenue last year (544.5 billion euros).

The first reforms came in 2021, when the number of income tax brackets was cut from five to four to create the current system:

Current tax brackets:

   Income (annual)  Irpef rate
First bracket Up to 15,000 euros 23 percent (aliquota)
Second bracket Between 15,000 and 28,000 euros 25 percent
Third bracket Between 28,000 and 50,000 euros 35 percent
Fourth bracket Over 50,000 euros 43 percent

The coming change will reduce the number of tax brackets down to three by merging the second and third tiers into a single one.

The reforms are expected to set the three bands at 23 percent, 33 percent and 43 percent initially, and government officials have said that a more costly option under consideration would lower the second band to 27 percent.

No further details were immediately given on Thursday, and the draft outline approved by Italy’s cabinet still needs the green light from parliament and then implementation by the finance ministry.

This change means people who are currently in the second bracket will see their Irpef payments increase by two or three percent, whereas those who are now in the third bracket will benefit from a seven- or eight-percent cut.

VAT cuts

The government has also said it is looking at cuts to VAT (known as IVA in Italian) on various products – and reports suggest it could scrap it altogether on at least some essential goods.

Italy applies a standard 22-percent VAT rate to most consumer goods, and lower rates to essential items (for instance, 4 percent on bread). This can be surprising to people from countries where VAT is usually zero-rated on basic foodstuffs.

With the new tax bill, the government plans to lower rates on all consumer goods which households purchase regularly: so-called shopping cart goods.

READ ALSO: Cost of living: What are Italy’s best price comparison websites?

The government is also reportedly considering scrapping VAT on at least some essential purchases, though this was not announced on Thursday and no further details have emerged yet.

Italian consumer group Codacons estimates that scrapping the tax on essential items would save the average household up to 300 euros a year.

Photo by ANDREAS SOLARO / AFP

Lower corporation tax

Meloni’s government said it plans to cut corporation tax from the current rate of 24 percent to 15 for companies that create jobs and make investments in “innovation” – a move that was initially welcomed by business groups, who said they’re waiting for more details to come.

Tax ‘bonus’ cuts

The changes have not been costed yet, but the plan to bring in a flat tax is expected to cost the treasury around 10 billion euros.

The government says plans to recoup this sum partly by curbing many of the financial incentives currently available to Italian taxpayers.

Italy has a mind-boggling array of tax rebates and other incentives in place – over 600 in total – which collectively cost the state 165 billion euros a year. 

The 2023 tax reform is expected to cut the amounts available through these incentives, and will also mean fewer people are eligible to claim.

The government has already begun to curb some of Italy’s most popular – and costly – tax rebate schemes as of the beginning of this year; namely the building bonuses providing generous state-funded discounts on renovation work. This includes the so-called superbonus 110, which was initially cut back in January before being made almost completely unavailable in February.

EXPLAINED: Are any of Italy’s building ‘bonuses’ still available?

Ministers have not yet released any details as to which other incentives may be affected by planned cuts.

Property taxes simplified

The taxes paid when buying property in Italy are notoriously hefty, with experts often advising buyers to budget around an additional ten percent of the purchase price in order to pay the various taxes and charges involved.

While there’s no sign that these costs will be lowered anytime soon, some of them are set to be streamlined: the upcoming bill will merge stamp duties (imposte di bollo) and cadastral taxes (imposte catastali) into a single fixed-rate fee which ministers hope will somewhat simplify the process of buying a home.

The Local will report further details of the upcoming tax changes once they become available.

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TOURISM

Flights, hotels, beaches: How the cost of travel to Italy is rising this summer

Inflation may now be falling but the price of a summer holiday in Italy has risen again - by up to 20 percent compared to last year.

Flights, hotels, beaches: How the cost of travel to Italy is rising this summer

Italian consumer rights groups said last year that the summer of 2023 would be remembered as “the most expensive ever” for travel. But 2024 has already smashed that record, according to the latest price surveys.

The rising cost of air fares, ferry tickets, hotels, restaurants and beach clubs add up to mean a holiday in Italy will be 15-20 percent more expensive this summer compared to last year, according to a survey conducted by the Assoutenti consumer research centre in June.

While price rises in recent years have been attributed to Covid and rising inflation, which is no longer thought to be a factor, this year Assoutenti said high demand was pushing up prices amid the post-pandemic tourism boom.

Prices in Italy were “out of control as a consequence of the resumption of tourism, after the stop imposed by Covid, and the record number of foreign visitors recorded in the last year,” the survey’s authors wrote, calling on the government to take measures to contain price increases.

READ ALSO: ltaly set for summer tourism boom as bookings increase again

They warned that more Italian families were likely to “give up the summer holidays this year, not being able to face an expense that increases from year to year,” and that those who do travel may book shorter trips to keep costs down.

Some 6.5 million Italians say they won’t be going on holiday this summer at all, with half citing economic difficulties, according to a separate survey commissioned by price comparison website Facile.it.

Meanwhile, there had been a nine percent increase this year in applications for personal loans for travel purposes, the survey found.

Flight prices

One of the biggest factors was the cost of air fares, as both domestic and international flights to and from Italy were found to be more expensive again this year.

While the cost of flights between European countries had fallen slightly following inflation-driven price hikes in 2023, Italy was bucking the trend.

Italy’s flight costs had risen instead, according to recent analysis in Italian newspaper Corriere della Sera, with the average price of a summer flight between Italy and the rest of Europe up by seven percent and domestic flights by 21 percent.

READ ALSO: Why are flight prices higher in Italy than the rest of Europe this summer?

Industry sources suggest the price increase is again down to unprecedented demand, while consumer groups say the main culprit is a lack of competition on the Italian market.

Transport costs

There were price hikes too for those using other modes of transport, with the rising cost of fuel and motorway tolls in Italy named as another contributing factor in the Assoutenti survey.

Ferry tickets were also more expensive, it found, with the average increase this August at +6.3 percent compared to 2023.

Hotels and B&Bs

For a family of four, the Assoutenti survey found the most expensive place to stay in Italy this summer was Porto Cervo, Sardinia, where the average price of a week’s three-star accommodation in August came to 3,500 euros.

The cheapest options were found to be Bibione, outside Venice (872 euros) and Rapallo in Liguria (909).

READ ALSO: Tourist tax: How much is it increasing in Italy’s cities this year?

The cost of accommodation at coastal destinations had risen by 23 percent on average overall, a separate survey by consumer group Altroconsumo found.

Hotels in cities were found to be a less expensive option, with most Italian families heading for the beach or mountains to escape the heat.

Restaurants

Adding to the overall cost, prices also continued to rise this year at restaurants in holiday resorts and at beach clubs: Assoutenti recorded an average increase for the catering sector of +3.5 percent on 2023.

Beaches

Renting sunbeds and umbrellas at Italy’s beach clubs is seen as a necessity by many Italian families – and often by international visitors too, given the lack of free options in many areas.

This too was becoming more expensive in 2024, with the average daily rate for a slot at one of Italy’s private beach clubs up by more than five percent on last year. Prices had also risen by as much as 11 percent between 2022 and 2023.

Beachgoers can now expect to pay around €30-35 for two sun loungers and a beach umbrella for the day on average, though prices can rise as high as €90 in Salento and €120 in parts of Sardinia.

Both private and free-access beaches in Italy also increasingly require advance booking due to higher demand.

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