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Italian tax cheaters: watch out!!! PDF Print E-mail
Dec 20, 2011 at 01:37 PM
Image Earlier this year the New York Times wrote a story which referred to tax evasion as the "Italian national sport". I thought that was pretty stupid, banal and hardly original, as it has been said (stupidly) before. There are several reasons why so many people in Italy cheat on their taxes, and while they are often inter-related, none of those even remotely resemble a game.

In any event, the figures are HORRIFIC and it is understandable that the Monti government - which was appointed to get  Italy's accounts into order - has seemingly serious plans to really crack down on cheaters. Statistics published in major Italian newspapers in recent weeks give a good idea of just how serious is the problem. Mind you, these figures have been published many times, before, every time some politician or analyst starts wringing his or her hands over a situation about which nothing is ever done. This time, hopefully, things will be different since Attilio Befera, currently the head of the Agenzia delle Entrate (the Italian IRS) estimates that every year Italians fail to pay €120 BILLION in taxes owed, that's $156 BILLION).

The Italian statistics institute, ISTAT, says that if you add on to this the value of the unregistered "off the books" economy, the Italian state is being cheated out of €275 BILLION every year. Yikes! Befera says in recent years the Agenzia has been able to recover something like 10 billion euros in cheated taxes per year. But this is just a drop in the bucket although he says that new electronic tools (and a decision by the Monti government to subject checking accounts to scrutiny and to ban cash for payments over €1000 euros could help.

So here's an idea of the enormity of the problem:

• 90% of Italian taxpayers declare an annual income of under €35,000 ($45,548)
• 49% of Italian taxpayers say they earn fewer than €15,000 ($19,520)
• 42% of what are known as luxury boats belong to people who say their annual income is below €20,000.
• 25% of private helicopters or planes also belong to people who declare incomes of under €20,000 per year.
Only 0.17% of Italian taxpayers say they earn more than €200,000 per year. (Absurd! When little old me worked for Il Sole 24 Ore gross income was somewhat over €100,000 and I was just a mere special correspondent at an Italian newspaper. (By the way, the one group of people in Italy who do pay their income taxes to the very last euro are private or state employees with regular full-time jobs. They have no way of cheating on their work income, although admittedly they may do a bit of cheating in other areas, for example renting property "under the table" or doing odd jobs off the books.)

• Only 3,100 (sic!, that's three thousand one hundred) Italians declare annual incomes of more than 500,000 euros ($650,457), which is totally ridiculous given the lifestyle of many here.
• In 2008, the average annual GROSS incomes declared by the following categories were as follows: hairdressers and barbers, €12,500; restaurants, €13,800; taxi owners (not drivers), €14,500; bars and gelaterie, €16,200; jewellers, €16,300. On the average, discotheques, gyms and beauty centers claim not to be making any money at all. For the first three categories, that's little more than €1000 a month which is way below the poverty line. And yet, while there is no doubt that Italy is now in the midst of a recession, this has not yet hit the people who have money.

Why do Italians cheat on their taxes?

Many Italians cheat on their taxes because, unfortunately, they don't really identify with the Italian state, don't understand the concept of citizenship and don't realize that taxes are not a punishment but payment for services. This is very serious.
Some cheat because they feel that the services they do receive are inadequate and because they feel there is so much greed and corruption around them that it's okay for them to be a bit corrupt as well. This is serious, too.
Others don't pay up because they know that if they did pay all taxes - which are undeniably very high here, the top tax bracket being 43% - they would go out of business; the corollary to this is that there are many small businesses here, particularly in commerce - shops, restaurants, bars - that are not economically sustainable and probably shouldn't even exist.
And finally - and this may be the most serious - a great many Italians cheat because if they paid their taxes they couldn't afford the lifestyle they want or, to put it bluntly, because they are simply greedy.
Indeed, all this cheating may account for the fact that according to Bank of Italy statistics published in the country's leading newspaper, Corriere della Sera on December 15, the total net wealth of Italian families in 2010 (including physical and financial property after debts) was higher than that of ANY OTHER G7 country, the others being France, Germany, Japan, USA, Canada, UK. Of course, these figures in themselves do not tell the entire story, which is that 10% of Italian families own over 50% of the combined wealth mentioned above.

Obviously, there are people who cheat on their taxes everywhere. I haven't lived in the US for some time now, but I am assuming that like here plumbers, electricians, housepainters and other artisans who work on their own do not usually give receipts. In Italy, they kind of blackmail you because if they gave you a receipt you'd have to add on the VAT tax which at the moment stands at 21%. Some doctors blackmail you, too, by telling you that if you want a receipt the cost of your session is higher. I stopped going to two doctors - an Italian gynaecologist and an American chiropractor here - because of this practice which is tantamount to telling the patient that he or she has to pay the doctor's (admittedly high) taxes. Stll, it is outrageous.

There is an additional problem, which is that for decades the Italian state has basically turned a blind eye to much of this, in effect convincing people that cheating was tolerated. Why? In part, the state's failure to really chase after offenders was because the offices of Il Fisco, as the Italian IRS is generally referred to, were understaffed, lacking in modern equipment and methods.

But there were also "political" reasons behind the decision not to crack down. For years the ruling parties such as the Christian Democrats and then Berlusconi's Forza Italia, may have seen to it that not to much attention was paid to the accounts of major contributors, particularly in the Italian South. Then, too, tolerating some level of tax evasion was seen as helping the economy. A small, uneconomic shop that opened could be seen as keeping someone's son or daughter from joining the ranks of the unemployed. In fact, shop owners are believed to be among the biggest tax cheaters, possibly because from an economic point of view their shops have little reason for existing (for decades governments here blocked the opening of large supermarkets, especially in the downtown areas) and make so little money that if they paid their taxes they would have to close.



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