Italian 2016 VAT rise unlikely

Fri 10th Apr 2015

Italy may avoid a commitment to raise its VAT rate from 22% to 24% in 2016, and then potentially to up to 26.5% by 2018.

Italy had committed to imposing VAT increases on itself if it failed to implement spending cuts to reduce its deficit as a percentage of GDP to below 3%. This is a basic requirement for membership of the Euro currency.

The Italian total debt has continued to rise in recent years, and may reach over 130% of GDP in 2015.

But the European Commission, which monitors compliance with the Euro currency rules and Italy’s deficit cuts, has now indicated that it will not impose sanctions or penalties against Italy if it fails to reach its targets. This would mean Italy would not have to activate the Italian VAT rise presented in the 2015 Stability Law. This is based on growth forecasts for 2016 being recently raised from 1% to 1.4%, which would indicate that the deficit to GDP will be below 3% this year.

The EC has similarly relaxed obligations on Belgium to reduce its deficit to 3% of GDP. But has put France under a warning that it must reduce its deficit to below 3% by 2017.

Italy raised VAT to 22% in October 2013.