The absurdities of taxation and the necessary reform
Almost thirty years after the publication of the first study on the distortions of the tax system, Eurispes is once again talking about the muddled nature of our system with a study coordinated by Lawyer Giovambattista Palumbo, Director of the Eurispes Observatory on Fiscal Policy, with a preface by the Deputy Minister of Economy and Finance, Maurizio Leo.
At the time, there were as many as 837 laws in force on taxation and 46 state, municipal, provincial and regional taxes. In short, a legislative flood. It is enough to open any of today’s newspapers to realise that the same critical issues identified in 1995 are still existent and indeed, in some cases, worsened. The study entitled “Il Fisco Impossibile – Storie di imposte, tasse, cittadini ed imprese” (The Impossible Revenue – Stories of taxes, fees, citizens and businesses), takes a snapshot of the current situation while waiting for the next, hoped-for tax reform.
Lawyer Palumbo explains the main issues identified by the research as follows: «The tax delegation law was approved last March 16th in the Council of Ministers. It picks up where the previous government left off, with some significant innovations, including, for example, a revision of tax penalties, where it was pointed out that we have administrative penalties ranging from 120 to 200% of the tax due, out of line with other European partners. A measure that also prepares for the idea of a radical revision of criminal tax penalties, where, objectively, it makes no sense for omitted payments to go before the criminal courts. It is indeed more reasonable that they represent a violation to be sanctioned on the administrative side, otherwise there is the risk of clogging up the public prosecutor’s office without leading to any significant result.
One of the great problems of taxation remains tax expenditures. Tax expenditures, as is well known, are listed in the Annual Report on tax expenditures, which is attached to the State Budget revenue estimate, where, however, the tax expenditures for which targeted analyses and in-depth analyses are possible, thanks to the availability of all the information involved in the survey (financial effects, frequency of beneficiaries and per capita financial effects), are only a part. A plethora of public subsidies, many of them in the form of tax expenditures, reflect a strong state intervention in the economy, and probably a stratified hypertrophy of legislative activity, often without systematic coherence.
In the national legal system, tax expenditures are defined as any form of exemption, exclusion, reduction of taxable income or tax, or favourable regime resulting from the rules in force. Hundreds of measures have been identified as tax expenditures by the Treasury, with a special section devoted to (also hundreds of) local tax expenditures. The total value of the measures (erarial and local) is almost 100 billion euros, and this value is in any case only a pipedream, since it does not take into account the considerable uncertainties in the identification of the subject matter, due to the fact that there is a number of erarial measures (about 1/3) that have not been quantified, and that there is another percentage of measures (about 70%) to which all the quantitative data (burden, frequencies, and per capita amounts) have not been provided.
In short, nobody really knows how much the state spends on tax expenditures.
What we do know is that about 50% of tax expenditures go to a small number of beneficiaries (max. 30,000 subjects) and that in the absence of all quantitative data (burden, frequencies and amounts per capita), for about 70% of the measures it is not even possible to carry out analyses.
But the problems do not end there; quite the contrary.
Worse than tax expenditures from transfers under the direct tax system there is only one thing: subsidies. In fact, subsidies do not take into account the income situation of the subsidised groups. If the objective is to help a company invest and grow, or to protect the purchasing power of individuals, then an advantageous income tax system, rather than subsidies on certain goods or categories, is more transparent and less distorting.
An example is the preferential excise tax on a band of electricity consumption in residents’ homes (about 650 million a year) that benefits the rich single person as much as a large, destitute family.
Billions in tax expenditures would then have to be eliminated as harmful to the environment and contrary to the government’s domestic and international commitments.
In short, there is much to be done.
In addition to tax expenditures that are not always justifiable, we also have revenues that are, let us say, not always coordinated (to put it mildly). Over time, the creative mind of those who had to find financial resources to replenish the treasury coffers has in fact expressed all its whimsy.
And the problem does not only concern the national treasury, since administrative decentralisation, first, and the 2001 constitutional reform, later, have created a veritable local tax jungle.
Indeed, municipalities today have dozens of different sources of revenue, including taxes and fees, surcharges and co-participations. And often many of these appear to be real duplications, as, for example, in the case of the municipal tax on advertising, public billposting fees and the fee for the authorisation to install advertising media.
For the occupation of public land, on the other hand, municipalities can choose between a tax and a fee; like, for example, the infamous “shadow tax”, which affects the shadow of balconies or curtains on public land, regardless of the actual occupation of the same.
Moving on to the provincial level (since the Provinces still exist), there are about ten sources of revenue, including taxes, fees, surcharges and co-participations. Even in this case, there are some cases that are not very clear, such as the surtax on electricity, which affects non-domestic users and has a regressive effect (with the consequence of making small businesses that consume less pay more), or that of the provincial registration tax, which levies three times as much on the sale of second-hand cars as on new ones. Finally, the Regions have dozens of other taxes: from Irap to automobile taxes, to the Irpef surtax; the co-participation in VAT is then assigned on the basis of consumption measured by Istat.
Taxes are too high and must be lowered. One of the fundamental steps that, given the figures for tax evasion in Italy and given the EU budget constraints, must be taken to (realistically) allow taxes to be lowered is to effectively combat tax evasion. What is certain is that the Public administration spends more than it collects. And it is therefore clear that there is something that does not add up. Reducing “useless” public spending is therefore necessary, perhaps by following the criteria of effieciency, effectiveness and cost-efficiency: the pillars of any good Public Administration.
As rightly pointed out during an inauguration of the judicial year by a President of a Regional Tax Commission, “the elite of tax evaders is far from being eradicated, as the statistics on the number of total evaders and the billions of euro hidden from the tax authorities show”.
Raising the tax rate on the highest incomes, i.e. making those few who really declare them pay even more taxes, would go precisely in the opposite direction to the constitutional principle of fairness and progressiveness that should characterise our tax system.
So let us welcome a (finally) reasonable and effective tax reform.
Also in order not to find ourselves, thirty years from now, where we are today and where we were yesterday.
And for this purpose, too, the research suggests some proposals.
Many of these indications can, moreover, be found in the tax delegation that has just been approved, which, it is hoped, will finally lay the foundations for a change of mentality and a change of perspective in the tax-taxpayer relationship.
In fact, the Inland Revenue must not be seen (only) in its repressive action, but also in its service to the taxpayer, in whose favour it actually performs its tax recovery action.
It is therefore necessary to radically transform the tax system with strategic vision. And it must also be done quickly. A country without an orderly, efficient and comprehensible tax system has no future».
