Italy avoids 24% VAT

Fri 14th Oct 2016

Italy is presenting a draft 2017 budget which excludes a promised 2% VAT rise from 22% to 24%. In 2015, Italy committed to raising its VAT rate in 2017 if it failed to meet deficit reduction targets.

Instead, the government hopes to renegotiate the stringent terms of its Euro-currency membership and avoid further extensive austerity measures. The European Commission is pushing Italy to reduce its deficit below 2.4% of GDP. Originally, the plan was to hit 1.1%. The Commission is anxious that Italy reduces its debt mountain, which is now over 130% of GDP – one of the world’s largest.

Italy is to hold a key constitutional referendum in December, and will not want to put forward highly unpopular tax rises.  There are no firm commitments given as to how Italy will meet the €15bn shortfall the VAT rise would have brought it.

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