Italian Government Mulls Corporate Tax Cuts in 2017 Budget

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By Eric J. Lyman

Aug. 23 — Italy's prime minister and other top government officials have promised to lower corporate taxes as part of a broader stimulus package to be included in the country's 2017 budget. But analysts said EU rules might limit the government's moves.

While the plans have so far been addressed only in broad strokes, a spokesman for Italian Prime Minister Matteo Renzi told Bloomberg BNA the government is getting the word out that taxes will be lower going forward.

According to the Finance Ministry, the government hopes to reduce the corporate income tax (IRAP) rate to 24 percent from its current level of 27.5 percent.

In televised remarks Aug. 18, Renzi said another “likely” item in the 2017 budget will be changes in the way some corporate and individual taxes are calculated so that the payment would be lower even if the rate itself doesn't change.

Renzi also said an income tax cut set to go into effect in 2018 could be moved up a year. And an automatic increase in the value-added tax scheduled for next year could be pushed back or canceled, the prime minister said.

“Lower taxes is a question of international competitiveness for Italian companies,” Renzi said.

EU Regulations

Meanwhile, Pier Carlo Padoan, Italy's minister of economy and finance, said Aug. 19 the government is working to increase economic growth by reducing the tax burden as much as possible within European Union regulations.

The EU rules are a key point, according to Javier Noriega, chief economist at Hildebrandt and Ferrar in Milan. Noriega told Bloomberg BNA that a weak macroeconomic picture for Italy would make it difficult for the Renzi government to make sweeping changes.

“Renzi has been pushing for more flexibility from Europe and without it, there won't be much he can do,” Noriega said. He said Renzi could lobby the EU for more flexibility by arguing that if the government falls, it could be replaced by a populist movement that would hold a referendum about staying in the euro zone.

The 2017 budget is due to be released in October, and the Italian parliament is required to pass the budget by Dec. 3.

To contact the reporter on this story: Eric J. Lyman in Rome at correspondents@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

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