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NEWS ROUND-UP: COUNTRY FOCUS – ITALYISSUE 30 | JUNE 6, 2013Italian Small BusinessesFearful Of VAT Rate HikeCGIA of Mestre, the Italian association of sole tradersand small businesses, has warned again of the effectof the further value-added tax (VAT) rate hike,expected next month, on family finances, domesticconsumption and small businesses in Italy.An increase in the country's current 21 percent VATrate to 22 percent on July 1 this year still remainsfrom the program, agreed by former Italian PremierMario Monti with the European Union, of balancingItaly's fiscal deficit by the end of 2013. Whilethe present Government has expressed the intentionof avoiding the rate rise, it is not yet certainthat it will find the additional revenue or reducedspending to be able to do so.A VAT rate rise is expected to have the effect offurther reducing domestic consumption in an Italianeconomy that is already in recession. CGIA hadalready calculated that the effective reduction inItalian family incomes will be substantial – equivalentto EUR2.1bn (USD2.7bn) for the remainderof 2013 and EUR4.2bn in 2014.CIGA has now pointed out that when the most recent1 percent VAT rate increase was made in 2011,VAT revenue, between mid-September 2011 andDecember 2012, actually decreased by EUR3.5bn.While, it stated, the depressed Italian economyhad obviously influenced the revenue outcome, theincrease in the rate had certainly contributed to afall in consumption, and therefore also tax collected.Giuseppe Bortolussi, CIGA's Secretary said that"that result should serve as a warning. From the beginningof the economic crisis to the end of 2012,Italy's gross domestic product has decreased by 7percent and household spending by 5 percent – inabsolute terms, an average decrease in spending ofaround EUR3,700 per family. If we do not foregothe VAT increase expected in a month, we run therisk of penalizing further the financial position offamilies, and that of small businesses and the selfemployedwho exist almost exclusively because ofdomestic consumption."Italian VAT is 40 years old this year, and Bortolussiadded that, if the rate rise is allowed to happen,its anniversary will be marked by Italian consumerssuffering the highest rate, at 22 percent, within theprincipal countries of the euro area.Italy Exits From EUExcessive Deficit ProcedureWhile Italian Premier Enrico Letta has expressedsatisfaction at the closure of the European Union's(EU) excessive-deficit procedure against Italy, theEuropean Commission (EC) has warned that fiscalconsolidation should continue and has maderecommendations on future tax measures that runcontrary to the Government's current proposals.61