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ECONOMY

Who will pay less income tax under Italy’s planned reforms?

Italy is planning an overhaul of the tax system meaning new income tax rates for many - but who will benefit the most, and least?

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Italy’s main income tax, Irpef, will undergo major changes as part of a planned overhaul of the country’s fiscal system. Photo by Mathieu Stern on Unsplash

Italy’s government on Thursday submitted the text of a long-awaited tax reform bill which ministers say will be the first step in a sweeping overhaul of the system planned by 2027

As previously reported by The Local, the bill will introduce a raft of major tax changes aimed at gradually reducing Italy’s notoriously high tax burden and making investment in Italy more appealing. 

The plan includes a substantial change to Italy’s main income tax, Irpef (Imposta sui Redditi delle Persone Fisiche), with the number of  tax brackets dropping from four to three.

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

This change is expected to mean a new tax rate for many workers in Italy starting from next year. But who’s going to benefit the most from the changes? 

Here’s what we know at this point. 

Irpef, which applies to all employees, many self-employed workers (regular partita Iva holders, but not those on the flat tax rate) and pensioners, currently counts four brackets, which are arranged as below:

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

The coming tax reform will reduce the number of tax brackets down to three, with the second and third bands being merged into a single one.

The tax rate for the lowest earners is expected to remain unchanged at 23 percent (for those earning 15,000 euros a year or less).

The tax rate should also stay the same for the highest earners taking home 50,000 euros a year or more, at 43 percent.

But middle earners who are currently in the second or third bracket may end up paying more or less tax – and it’s still unclear exactly what will happen. 

READ ALSO: The tax changes in Italy to know about in 2023

While Thursday’s announcement confirmed the number of tax bands will drop to three, the newly published bill didn’t specify what tax rate the new band would carry nor confirm how rates in other bands would be readjusted. 

However, Meloni’s cabinet is reportedly considering two options. 

First scenario

Under the first, and currently more likely, option, the new middle bracket will mean all taxpayers earning between 28,000 and 50,000 euros a year will pay a 33-percent rate.

Rates for the first and last brackets would remain the same.

This would mean all those who are currently in the second (income between 15,000 and 28,000) and third bands (28,000 to 50,000) would see their tax rate drop by two percent next year and subsequently benefit from sizable cuts to their Irpef payments. 

  Income (annual) Irpef rate
First bracket Up to 28,000 euros 23 percent
Second bracket Between 28,000 and 50,000 euros 33 percent
Third bracket Over 50,000 euros 43 percent
     

Second scenario

Meloni’s government is also considering a second scenario, with a 27-percent rate for a larger middle band – an option that would be much more costly to the state, and so seems less likely.

This would mean people currently in the second bracket (15,000 to 28,000) will see their tax rate increase by two percent, while those in the third bracket (28,000 to 50,000) would benefit from a whopping eight-percent cut

Rates for the first and last brackets would again remain the same.

  Income (annual) Irpef rate
First bracket Up to 15,000 euros 23 percent
Second bracket Between 15,000 and 50,000 euros 27 percent
Third bracket Over 50,000 euros 43 percent
     

Which path will the government go down?

While it was hoped that the bill’s text would clarify what rate the new band would carry, there are currently no details as to which option the government intends to go with.

That said, the first option seems to be the more likely one at this point in time, not least because implementing it would reportedly cost state coffers around 6 billion euros, whereas the second option would present the treasury with a 10 billion-euro bill.

Further information over which route the government will ultimately go down should emerge in the coming weeks as the bill goes through parliament. 

And even the possibility that Meloni’s executive might end up adopting an Irpef system other than the two described above cannot be ruled out at this time.

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POLITICS

Italy’s government proposes bill to make surrogacy a ‘universal crime’

Italy’s parliament is set to debate a bill that would expand criminal penalties for the use of surrogacy, in what opponents say is part of a broader attack on gay rights by the country’s hard-right government.

Italy's government proposes bill to make surrogacy a 'universal crime'

Prime Minister Giorgia Meloni is lead signatory on the new bill, which would make surrogacy – already a crime in Italy – a criminal act for Italians who make use of the practice anywhere in the world.

The motion combines previous draft laws from the ruling Brothers of Italy, Forza Italia and League parties, and will be debated in the lower house from Wednesday, according to news agency Ansa.

The move comes days after the government ordered the city of Milan to stop issuing birth certificates to the children of same-sex couples on the grounds that the practice violates Italian law.

READ ALSO: Milan stops recognising children born to same-sex couples

Prime Minister Giorgia Meloni has long been outspoken against surrogacy, which she has described as “a commodification of women’s bodies and of human life.”

In a heated parliamentary debate on the rights of same sex couples on Monday, her Brothers of Italy colleague Federico Mollicone, chair of the lower house’s Culture Committee, said surrogacy was “more serious than paedophilia.”

Similar comments were made in 2017 by a minister of the now-defunct New Centre Right party, who likened entering into a surrogacy arrangement to committing a sex crime.

READ ALSO: ‘Surrogacy is like a sex crime’: Italy minister

In early 2022, as leader of the Brothers of Italy party in opposition to Mario Draghi’s coalition government, Meloni put forward the same motion to make surrogacy a “universal crime”.

The text was adopted by the Justice Committee of the former legislature – a preliminary step before it can be debated in the lower house – last April, but did not go further at the time.

The crime of surrogacy in Italy is currently punishable with a prison sentence of over three years or a fine of between 600,000 and one million euros; penalties that the government is proposing to extend to all Italian citizens who engage in the practice, regardless of where it occurs.

Whether such a law would even be possible to pass or enforce is unclear, and legal experts have dismissed it as impractical. 

“There are no conditions that would justify an expansion of penal intervention of this type,” Marco Pelissero, a professor of criminal law at the University of Turin, told L’Espresso newspaper.

The idea of a universal crime “does not even exist in the legal language,” he said.

But the proposal has aroused fears that, if passed, the law could result in large numbers of same-sex parents whose children were born via surrogates being sent to prison.

“With this law we would be exposing families with young children to criminal law, quite simply criminalising procreative choices made abroad in countries where these practices are regulated,” Angelo Schillaci, a professor of Comparative Public Law at La Sapienza University, told the news site Fanpage.

‘We are aware of how hard this government is working to strip even the most basic rights from same-sex-parent families,” Alessia Crocini, head of the Rainbow Families organisation, said last week when it was first announced that Milan had been banned from registering the children of gay couples.

The move resulted in large-scale protests across the city on Saturday, and Milan Mayor Beppe Sala has pledged to fight the change.

“It is an obvious step backwards from a political and social point of view,” he said in a recent podcast interview.

On Tuesday, European Justice Commissioner Didier Reynders commented that European Union member states are required by EU law to recognise the children of same-sex couples.

“In line with the LGBTIQ equality strategy for 2020-2025, the Commission is in continuous dialogue with Member States regarding the implementation of the judgments of the Court of Justice of the European Union.”

“This also includes the obligation for Member States to recognise” children “of same-sex parents, for the purpose of exercising the rights conferred by the EU”, Reynders reportedly said in response to question about the developments in Milan.

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