{"id":6505,"date":"2025-01-31T08:12:18","date_gmt":"2025-01-31T07:12:18","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=6505"},"modified":"2025-01-31T08:12:18","modified_gmt":"2025-01-31T07:12:18","slug":"how-much-money-does-italy-lose-to-tax-amnesties","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2025\/01\/31\/how-much-money-does-italy-lose-to-tax-amnesties\/","title":{"rendered":"How Much Money Does Italy Lose to Tax Amnesties?"},"content":{"rendered":"

The history of tax amnesties in Italy is a long one. These measures invariably result in losses for the state coffers. However, particularly severe damage has been caused by tax debt settlements. Taxpayers tend to forgo paying settled debts if they expect new, more favorable clemency measures. Yet, there is some good news in the fight against tax evasion.<\/em><\/p>\n

 <\/p>\n

The history of our country is riddled with tax amnesties, dating back to the time of Italy\u2019s unification. According to a study by the Bank of Italy, there were 57 amnesty initiatives between 1861 and 1973, the year of the major tax reform that introduced income tax (Irpef) and value-added tax (IVA).<\/p>\n

A Brief History (and Economics)<\/strong><\/h3>\n

It was this 1973 reform that provided the pretext for what has since been the perennial justification (or, more accurately, the excuse) for introducing tax amnesties: the need to allow for a “new beginning” in the relationship between taxpayers and the tax authorities. From 1973 to 2010, there were 25 additional tax amnesties, averaging one every 246 days. During this period, a trend emerged to waive not only assessed penalties but also taxes theoretically owed.<\/p>\n

Every decade, according to the Bank of Italy study, saw the introduction of so-called “blanket amnesties,” aimed at definitively settling tax liabilities for a specific period without substantive fiscal audits. These blanket amnesties of the 1980s and 1990s (e.g., in 1982 and 1991) allowed taxpayers to achieve fiscal peace simply by applying incremental percentages to their originally declared tax amounts, provided they reached a minimum level of dues for each year covered. Consequently, the less a taxpayer declared (and therefore evaded), the less they had to pay.<\/p>\n

The 2002 amnesty under the Berlusconi government (Finance Minister Giulio Tremonti) limited eligibility to self-employed individuals and small business owners. It was tied to revenue estimates derived from sector studies, under the (somewhat bold) assumption that these studies plausibly estimated the taxpayers\u2019 income. This was the last attempt to include VAT in amnesty measures, a practice that conflicted with the EU\u2019s principles and was ultimately deemed illegal by the European Court of Justice.<\/p>\n

Economic research suggests that repeated tax amnesties undermine tax compliance\u2014the willingness of taxpayers to accurately declare their income in subsequent periods. Stefano Pisani, a former head of the Italian Revenue Agency and later an expert for the International Monetary Fund, documented this effect for Italy. Between 1983 and 2011, he estimated a nearly 2% increase in the VAT gap (the difference between VAT owed and collected) for every 1% rise in GDP resulting from amnesty revenues. In other words, even if amnesties temporarily boost revenues, they lead to a decline in tax declarations over time as taxpayers anticipate future amnesties.<\/p>\n

This negative consequence occurs regardless of whether VAT is directly involved in the amnesty. Lower declared income translates, especially for small businesses, to lower declared value-added and consequently lower VAT owed.<\/p>\n

Over time, it has become increasingly evident that amnesties are often used by Italian governments of various political affiliations as one-off measures to generate additional revenues to fund temporary bonuses or cover unforeseen expenses. The approach, akin to “getting quick and dirty money,” disregards the possibility of achieving revenue collection closer to the evaded amount\u2014a goal deemed unfeasible given Italy\u2019s chronically inefficient tax collection system. However, the short-term effectiveness of amnesties is itself questionable, as evidenced by recent developments.<\/p>\n

How Much Has Been Lost to Tax Settlements?<\/strong><\/h3>\n

Since 2010, blanket amnesties have disappeared, but other similar initiatives have emerged. As documented by lavoce.info<\/em>, the Conte I government introduced the \u201cSaldo e Stralcio\u201d initiative in 2018, allowing financially distressed individuals to settle only part of their tax debts while extinguishing the remainder. In the same year, tax debts below 1,000 euros for the years 2000-2010 were canceled. In 2021, the Draghi government repeated this operation for debts up to 5,000 euros for the same period (via the “Sostegni Decree”).<\/p>\n

Debt settlements have also proliferated. The Renzi government introduced the first such measure in 2016, followed by the “Rottamazione-bis” under the Gentiloni government in 2017 and the “Rottamazione-ter” under Conte I in 2018.<\/p>\n

The term “tax debt settlement” refers to the practice of resolving tax debts (including the owed taxes, penalties, and interest) through installment payments. Unlike blanket amnesties, settlements do not erase the principal tax debt but waive penalties and interest. Over time, the repayment terms have become increasingly lenient to encourage more taxpayers to participate.<\/p>\n

The most recent initiative, the “Rottamazione-quater,” was enacted in the 2023 Budget Law. According to estimates from the Ministry of Economy and Finance included in the accompanying technical report, the expected revenue from the Rottamazione-quater is approximately 12.4 billion euros. However, it is estimated that over 13 billion euros in revenue will be lost due to reduced ordinary collection efforts. Despite Italy\u2019s inefficient collection system, a portion of the debts settled through amnesty measures would have been recovered, including penalties and interest.<\/p>\n

The technical report also highlights over 400 million euros in revenue losses from the Rottamazione-ter because taxpayers were allowed to suspend installment payments and transfer them to the new, more favorable Rottamazione-quater plan. Additionally, 260 million euros in lost revenue from canceled enforcement activities further exacerbate the fiscal deficit. Ultimately, the Rottamazione-quater costs the treasury nearly 1.3 billion euros\u2014a costly measure that, according to official estimates, is expected to reduce rather than increase revenue even in the short term.<\/p>\n

Parenthetically, these estimates do not account for other costs highlighted by the Court of Auditors in its 2023 General Accounts Report: 5.4 billion euros in expired installments for 2023 were not paid, with a significant portion of taxpayers likely using the settlement to delay enforcement actions. The theoretical revenue from taxpayers adhering to settlements but never paying should be deducted from the above figures, as it reflects a loss waiting for the next amnesty.<\/p>\n

In summary, repeated amnesties do not benefit the state in the medium term and, at least for Italy, fail to do so even in the short term when structured as debt settlements. Yet, Italian governments persist.<\/p>\n

A New Blanket Amnesty?<\/strong><\/h3>\n

To salvage its advance tax agreement measure, the Meloni government introduced a mechanism allowing self-employed individuals and sole proprietors to pay a supplementary tax on income already declared for the still-auditable years from 2018 to 2022. The amount depends on the taxpayer\u2019s Synthetic Tax Reliability Index (ISA) score, ranging from 1 to 10. A taxpayer with a score of 10 can qualify by declaring a taxable income increase of just 5%. For scores below 3, the required increase rises to 50%, with a sliding scale applied to scores between 3 and 10.<\/p>\n

On the additional declared income, the substitute tax rate is not the regular Irpef rate but a reduced rate of 10-15%, increasing as the ISA score decreases. Further reductions of 30% apply for the pandemic years, 2020 and 2021.<\/p>\n

Under these conditions, the measure incorporated in the advance agreement effectively constitutes a blanket amnesty reminiscent of Tremonti\u2019s era. Taxpayers scoring below 3 are likely more evasive than others in their sector, yet they are only required to disclose a fraction of their evaded income and pay a portion of the taxes owed. Moreover, honest competitors who paid full taxes are penalized. While this mechanism appears highly advantageous, preliminary results (participation was due by October 31) suggest it has not met expectations\u2014which, arguably, is not entirely bad news.<\/p>\n

What Should Be Done?<\/strong><\/h3>\n

How can tax evasion be reduced, and owed taxes collected from evaders? This is a complex issue requiring innovations in the powers and tools available to the tax administration, as well as in its organizational culture and interactions with taxpayers.<\/p>\n

The good news is that numerous successful reforms\u2014some even implemented in Italy over the past five years\u2014have significantly curbed evasion. Examples include the introduction of split payments, electronic invoicing, and the online registry of receipts. These measures should serve as a foundation for further reducing evasion, particularly among self-employed individuals and sole proprietors, whose evasion rates remain high. Such efforts represent the most efficient public finance strategy available to Italy.<\/p>\n

 <\/p>\n

 <\/p>\n

Alessandro Santoro is Professor of Public Finance at the University of Milan-Bicocca and consultant for the IMF. Former chair of the Commission on Tax Evasion, member of the management committee of the Italian Revenue Agency, and advisor to the Ministers of Economy from 2020 to 2023.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

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