Italy Seeks to Avoid Tax Hikes as Part of Coronavirus Recovery

Italy wants to guarantee that value-added and fuel excise taxes won’t increase in 2021 as part of a plan to help ease a severe economic downturn caused by the coronavirus pandemic.

The move would “provide certainty to companies and citizens that need to organize their business and create investment plans in a context made uncertain by the current emergency,” the government said in a statement Friday announcing the plan.

Under a budgetary safeguard law, the VAT rate in 2021 will increase to 25%, from 22%, and excise fuel taxes will go up, unless 20.1 billion euros ($21.7 billion) are allocated from other sources to offset the revenue that the increases would generate. The safeguard guarantees that Italy complies with its annual deficit requirements under EU budgetary law.

The government will ask Parliament to eliminate the safeguard measure as part of a 55 billion euro ($59.5 billion) recovery fund.

Last month, the European Commission and finance ministers agreed to trigger a “general escape clause” allowing deviation from normal budget rules as EU countries tackle the economic fallout of Covid-19. Italy’s GDP is expected to shrink by 8% this year due to the crisis, the government said.

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