The reorganization of taxation on income from financial activities appears to be one of the central points of the tax reform Minister Tremonti is working on.
The need to rebalance the levy on financial income with that which weighs on other income, in particular business and employee income, is a widely shared and difficult to contest principle. In fact, in Italy, the tax burden on financial income is lower than that in the other main countries where the levy on interest either takes place as part of ordinary taxation or, in the case of substitute tax, provides for rates not lower than 20 %.
The idea of aligning the two rates currently present on the various financial instruments into a single rate, presumably setting it at 20%, therefore appears to be a reasonable and easy solution to implement. In practice, however, this hypothesis implies several critical issues that suggest careful consideration.
If the measure also concerned government bonds, it would be a matter of assessing whether the increase in the rate from 12,5% to 20% would affect all outstanding bonds or only newly issued ones. In the first case, the revenue deriving from the reorganization would be maximized, but the "contractual" conditions established at the time of the issue would also be modified. On the other hand, the second hypothesis would lead to a segmentation of the market between the various instruments with possible tax arbitrage and unwanted price distortions. In practice, households would throw themselves into the old bonds, leaving the new issues to the so-called "lordists". In this regard, it should also be noted that, as far as government bonds are concerned, the share held by savers interested in the measure does not exceed 25% of the total. The remainder is in the hands of companies and businesses (25%) for which the income deriving from interest is part of ordinary income and, above all, by foreign investors (50%) for which this income is substantially exempt and for which the presumed (partial) increase in the gross yield would constitute an unexpected gift to the detriment of Italian savers.
It should also be noted that the increase in the rate would inevitably discourage the purchase of corporate bonds and, above all, bank bonds – these are held mainly by households – precisely at a time when the need for financing by credit institutions, already severely affected since Basel III, they are greater. This would clearly run counter to the objective of increasing bank lending to businesses, especially small and medium-sized ones. This disincentive would obviously be much greater in the unfortunate event in which the change in the rate does not concern government bonds, as hypothesized by some journalistic sources.
There are two other points of attention, less emphasized so far but equally important. The first concerns the need to adjust the rates affecting the so-called qualified holdings. Today, in fact, the taxation on these shareholdings is fixed in such a way as to take into account the taxes already paid by the company, so as to determine an overall average taxation of corporate profits no higher than that corresponding to the highest income bracket and, at the same time, ensure a more favorable condition for non-qualified holdings. If the proposal to revise the rates were definitively approved, however, we could find ourselves having the case in which the small saver pays more taxes on the investment in shares than the large shareholder.
Secondly, it will be necessary to accept at least the idea that the rate differential with respect to pension funds will widen, for which a reduced rate of 11% is currently envisaged in the accumulation phase. In fact, an increase in the latter would frustrate the objective of encouraging the development of pension savings in our country.
Lastly, the economic and organizational burdens that will inevitably weigh on the intermediaries, who have the role of withholding agent and who will be called upon to review their procedures, must be taken into account. In this regard, it will be necessary to provide for an adequate period of adaptation to the new measures.
In conclusion, the impact of the measures under study on the Italian financial markets and on the activity of banks and other financial intermediaries will not be negligible. Experience shows that markets adapt quite quickly to new conditions. Compared to the past, however, it is necessary to take into account the increased integration and competition between markets, intermediaries and, above all, financial instruments issued and traded in Europe. The hope is that the new provisions keep well in mind the need not to put Italian savers and operators at a disadvantage compared to competitors from other countries so as not to further penalize our financial centre, in open conflict with what the top management of the Supervisory Authorities themselves hoped for.
