Tax Evasion in Italy and the EU: Investigating a Relationship

With the 1971-1974 tax reform Italy adopted, for the first time in its history, a modern fiscal system, aimed at achieving three fundamental principles:

1. Realization of equity distribution and progressivity;

2. Promotion of centrality of taxes on trade rather than taxes on the quantities in the system of indirect taxation;

3. Achievement of qualitative discrimination of work incomes.

However, according to the "Agenzia dell'Entrate" (AE), the Italian Revenue Agency, the main objectives of the reform were actually:

• Revenue growth;

• Greater vertical and horizontal equity through the introduction of the personal income tax;

• Manoeuvrability and transparency of the charging system;

• Adaptation to the international framework.

Today the current Italian tax system, as the one of many other countries such the UK for instance, consists of two types of taxes: taxes and levies. [Connolly and Munro, 1999; Pellegrino, 2006] Taxes are represented by charges that the citizen has to pay for a specific service lent by the State and can be grouped in three categories:

• Administrative taxes, which are those paid for services provided by the Public Administration;

• Industrial taxes, which are those paid for the issue of trademarks and patents, or for the verification of weights and measures;

• Court taxes, which are those paid for the performance of judiciary, civil and administrative services.

Levies can instead be divided into direct and indirect fees. Direct are those that refer to the wealth owned or produced by the taxpayer and the most common are:

• Irpef or personal income tax;

• Ires or corporate income tax;

• Irap or regional tax on productive activities;

• Ici or tax on property.

Indirect are instead those that apply to operations that produce income, such as transfers of assets and income when it is consumed. They usually are divided into business taxes, production taxes, taxes on monopolies and lotto. The most important are:

• IVA (Value Added Tax), which affects the value of the exchange at all stages from production to the sale of the final good to consumers;

• Registration tax and stamp duty;

• Production taxes, such as taxes on the manufacture of mineral oils, natural gas, alcohol, etc.

For simplicity and for the purpose of this paper, only the most relevant taxes will be taken into account and analysed. Effectively, it can be said that the four most important taxes account for 80.8 per cent of the entire tax revenue and these are IRPEF, IRES, IRAP, IVA.