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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 to ban lab-grown foods in bid to protect tradition

Italy's government on Tuesday approved a bill banning the use of synthetic foods, including artificial meat, which it says threatens the country's agri-food heritage.

Italy to ban lab-grown foods in bid to protect tradition

“Laboratory products in our opinion do not guarantee quality, well-being and the protection of our culture, our tradition,” said Agriculture Minister Francesco Lollobrigida, from Prime Minister Giorgia Meloni’s far-right Brothers of Italy party, at a press conference on Tuesday.

READ ALSO: Four myths about ‘traditional’ Italian food you can stop believing

Meloni’s nationalist administration has pledged to protect Italy’s food businesses from technological innovations seen as harmful, and renamed the agriculture ministry the “ministry for agriculture and food sovereignty”.

Health Minister Orazio Schillac admitted there was “no scientific evidence of possible harmful effects linked to the consumption of synthetic foods” but said the move to ban them was “based on the precautionary principle”.

Meat substitutes have long been produced, with varying degrees of success, from vegetable sources like soya, peas or beans.

The new legislation specifically targets synthetic products being developed in laboratories from animal cells, which aim to ‘grow’ meat without killing the donor animal.

Italy’s goverment says synthetic meat products theaten its national food traditions. (Photo by Josep LAGO / AFP)
A 3D-printer at a food expo in Barcelona, Spain, creates plant-based proteins which mimic the texture of beef. Italy has moved to ban the production of such foods. (Photo by Josep LAGO / AFP)

If the proposal is passed by parliament, penalties for violations would include fines of up to 60,000 euros ($64,000).

Agriculture lobby Coldiretti praised the move, saying a ban was needed to safeguard domestic production “from the attacks of multinational companies”.

“Italy, which is a European leader in food quality and safety, has a duty to be at the forefront of food policies to defend citizens and businesses,” Coldiretti president Ettore Prandini said in a statement.

READ ALSO: Why claims Italian cuisine is a ‘modern invention’ have angered Italy

But critics said the move was part of the government’s focus on identity politics and would leave Italian businesses trailing behind rivals in other European countries.

“A new day, a new enemy, a new crime,” said Giordano Masini of the left-wing More Europe party.

“Instead of welcoming a potential new development opportunity, which could bring new businesses and more jobs, the government rushes to ban it, imagining health risks that no one has ever shown.”

“In the end, foods obtained via cell culture will arrive anyway, as it is the EFSA that evaluates the health risks of food products [in Europe] not the Italian government, and the European Union will allow them onto the single market. 

“So producers in other countries who, in the meantime, can do research and development will be the ones to benefit.”

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The ban was also crtiticised by organisations supporting the development of cell-based food products across Europe, as well as animal rights groups.

“The passing of such a law would shut down the economic potential of this nascent field in Italy, holding back scientific progress and climate mitigation efforts,” Alice Ravenscroft, head of policy at the Good Food Institute Europe, told Reuters.

In order to come into force, the bill will have to be adopted within two months by parliament, which may amend it during debates.

Currently no marketing applications for such foods have been made in the EU, and it is likely to be at least 2025 before such foods appear on shelves in Europe.

The ban on lab-grown meat was not the only rule proposed by Meloni’s administration aimed at preventing unconventional foods from being served on Italian tables.

The government was also reportedly preparing decrees to introduce information labels on products containing or derived from insects amid concerns about the use of cricket flour.

Italy’s government also said last week it planned to launch a bid to have “Italian cuisine” included on the UNESCO list of intangible cultural heritage, though it was not immediately clear which dishes it would include.

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