Italy's tax evasion above expected and rising, Treasury report shows

Italy's ‌tax ​evasion is higher than previously estimated and on an upwards trend, new government data shows, raising questions about Rome's ability to tackle a chronic problem as it seeks to keep its strained ‌public finances in check.

According to a report by a Treasury-appointed commission, unpaid taxes and social contributions rose by more than €7 billion ($7.87 billion) in 2023 from 2022, bringing the total to between €107.9 billion and €112.8 billion. Italy releases its estimates on tax dodging with a three-year lag so that if ‌evasion is shown to be falling, governments cannot spend revenue that may prove temporary.

With a massive and rising public debt ‌seen peaking at 138.5% of gross domestic product next year, Rome is aiming to pursue a prudent budget policy amid rising borrowing costs. PM MELONI FAVOURS COOPERATION OVER CRACKDOWNS

Since taking office in 2022, Prime Minister Giorgia Meloni has taken what she calls a cooperative approach with taxpayers, arguing that previous crackdowns against evaders had not ⁠worked. Her ​first budget offered offenders 12 different ⁠tax amnesties, reducing or eliminating penalties if they settled their debts to the tax man.

The report showed tax evasion was on the rise between 2021 and 2023, ⁠though it added that the increase in absolute cash terms may partly reflect higher taxable income, driven by the post-COVID-19 economic recovery and rising inflation ​in recent years. Government-appointed experts therefore recommended using as the proper gauge for analysis the ratio between the amount of unpaid taxes ⁠and total taxes owed.

Using this criterion, Italy's propensity to evade taxes fell on an annual basis by 0.2 percentage points in 2023 to an estimated 17.3-17.5%. Between 2019 and ⁠2023, ​the indicator improved more decisively by around 2.5 percentage points.

Propensity to evade value added tax rose to 20.4% in 2023 from 19.4% the year before. "Looking at the longer time frame, there is a gradual decline in the share of the informal economy ⁠in the national economy," the report said.

However, Italy revised upwards its estimates of unpaid taxes and security contributions for the 2019-2022 period ⁠compared with the figures published in ⁠the previous report released a year ago. Among moves to soften past crackdowns on evasion, Meloni has raised a limit on cash payments to €5,000 euros from €1,000.

She was forced to backtrack on a proposal ‌to cut sanctions against shopkeepers ‌refusing to accept digital payments, following criticism from European Union authorities. ($1 = ​0.8895 euros)

(Editing by Gavin Jones)