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Clamping Down on Tax Evasion in Italy

Tax evasion robs Italy’s state coffers of something like 180 billion Euros a year.  Recently, Italy has been trying to find ways to recoup these record losses and the new Mario Monti led Italian government is looking into ways of making Italians pay more tax.

Italians already pay lots in taxes.  Italy’s tax burden is already high and may reach 44.5% by 2014.  The reason for such high taxes is mainly because the government has to collect as much as it can from the poor devils who actually do pay taxes – namely those who are paid above-the-board salaries.

Not helping matters on the tax evasion front has been the widespread use of friendly untraceable cash to pay for just about everything and anything from cars to houses, as well as the odd motor yacht.

To redress this situation, it has become virtually impossible to make cash payments for anything which costs over €2,500 in Italy (unless you pay in monthly instalments of €2,499!).  Prior to this change, the threshold for cash payments had been €12,500, which was then reduced to €5000.  Now, there is talk of reducing this threshold even further.  An Italian government led by former Prime Minister Romano Prodi wanted to reduce the threshold to a mere €100.  As a result of strenuous objections from cash-loving Italy, this proposal was dropped.

Today, though, the cash payment threshold is being examined once more.  Italy’s Confindustria Employers’ Federation proposed that the limit be reduced from the present €2,500 to €500 and now, according to an article which appeared in Italian newspaper La Repubblica on November 19th 2011, €300 may become the new limit for cash payments.  Anything which costs more than €300 would have to be paid using a credit card or a check – if the proposals ever become law.  Whether ATM, or bancomat cards as they are known in Italy, may be used to make payments over €300 is not yet clear.

40 Billion Euros

It is estimated that obliging Italians to pay electronically should recoup €40 billion for state coffers.  That still leaves €140 billion, but it is a good start.

Obviously, by forcing Italians to pay electronically, movements of cash can be followed and individuals who pay €200,000 for a new car but only declare an annual income of €10,000 would have some explaining to do.  Italy’s tax man has already been putting two and two together.  Owners of flash cars who declare minimal incomes are being stopped and asked just how they manage to afford their luxury rides, and the insurance, for that matter.  Electronic payments would mean that roadside checks can be replaced by automated computer checks.  And computers do not care whether you know a bigwig in the local tax office.

Cash is King in Italy

Making Italians use electronic forms of payment is not going to be easy.

Italians love cash with some 43.7% of all transactions, according to the Bank of Italy, taking place using paper money.  This preference for paper in Italy can be attributed to 52.1% of Italians not really wanting to use plastic money.  The fear of fraud and credit card cloning accounts for 13.7% of Italians not wanting to use plastic.  10% of Italians simply object to paying a fee for having a credit card, or so research by Alter Ego discovered.  The number of Italians who pay in cash is above the European average.

What Italians are probably unaware of is that managing paper money and coins costs Italy some 10 billion Euros annually.  Theoretically, if Italy adopted electronic payment systems, at least some of the €10 billion could be used to offset annual payment card fees.

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In view of the bad name banks have earned for themselves, some Italians would inevitably grumble over handing over management fees to banks for electronic payment cards.  Ideally, such cards should be issued free and it should be possible to top them up free too.

Tax evasion levels would probably fall as a result of the introduction of electronic money in Italy which would mean that Italy’s government should be happy to fund at least part of the costs of running and maintaining electronic payment systems.  The budget for this would be in the region of €10 billion a year, which, as you will remember is how much it costs to manage paper money in Italy.

Will It Ever Happen?

The answer is, as always, maybe.  When it will happen is another question entirely.

Another issue may be the effect electronic money has on prices in Italy.

If all of Italy’s bars are finally forced to account for every cup of espresso served, then prices may well increase by well over 100%.  Shop owners who have been obtaining cash discounts on stock may also put up their prices.  The services of plumbers and electricians would become prohibitive!

If prices rise, then consumption will fall  – unless Italy’s government reduces taxes enough to increase levels of disposable income.  Very careful monitoring will be a necessity if Italy is ever to become a successful cash-free or even partly cashless society.

There is also the question of trust – Italians are very wary of handing over money to their governments as they feel that much of their money will be squandered.

At the same time as Italy’s government cracks down on tax evasion, it is also going to have to become more efficient and much more transparent.

Mario Monti, if he and his technocrat government actually manage to stay in power, are going to need plenty of painkillers to cure all the headaches sorting out tax evasion in Italy is bound to cause.


No Cash Day 2011 press release – in Italian

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