Italian tax amnesty could bring $150 billion home, but at what price?(Read article summary)
Italy is giving tax evaders amnesty: a chance to bring their money home from tax havens at a cheap price. But critics worry the government is feeding a culture of tax evasion.
MILAN, ITALY â€“ When 50,000 Italians received a letter from the tax office last week, they breathed a sigh of relief. They weren't being billed. Instead, they were given a gentle reminder that they had until Dec. 15 to declare any money illegally held abroad â€“ or else.
The Italian government is desperate to attract capital home in a time of economic crisis, not least to boost tax revenue. The Scudo Fiscale (â€śfiscal shield") program allows citizens to bring money from offshore tax havens while remaining anonymous and avoiding sanctions for past tax evasion. All they have to do is move their money to an Italian account within the next two months and pay a 5 percent fee.
But critics say the plan is the latest in a long line of amnesties that have created a culture of tax evasion for wealthy Italians.
â€śThe idea, in theory, is to give people a last chance. It should be an emergency measure,â€ť says Paolo Guerrieri, who teaches international economics at La Sapienza University in Rome. â€śBut in practice this is an incitement to tax evasion. Here in Italy these kinds of 'emergency measures' are so frequent that people know they can just wait for the next amnesty,â€ť says Mr. Guerrieri. â€śIt's an insult to honest citizens.â€ť
But those who do hold illegal foreign accounts may have an extra incentive to take advantage of the amnesty this time around, with Switzerland recently relaxing its banking secrecy rules, which increases the odds that Italian tax cheats will be caught. During the G20 summit in March, Swiss authorities agreed to cooperate more with other nations in tracking down tax evasion. The move came following pressure from the US and European countries worried about the impact of tax evasion on their economies.
Following this change in Swiss policy other European countries are also approving measures to bring capital back home. â€śBritain and France, for instance, are offering penalty discounts for those who transfer into local accounts money illegally held abroad,â€ť says Guerrieri. â€śBut they don't grant anonymity, nor do they condone past tax evasion.â€ť
Most European nations need extra cash now, Geurrrieri says, but Italy's situation is unique: â€śYou can't compare offering penalty discounts with condoning crimes,â€ť he says. â€śWe're openly surrendering the possibility to build a sound fiscal system [in exchange] for an immediate profit. And eventually we'll pay the price. No wonder Italy has one highest tax evasion rates in the continent,â€ť he says.
Italian capital held illegally abroad is estimated at about 300 billion euros ($450 billion), according to government figures. At least a third of that money is thought to be in Swiss banks. Reportedly, 29 000 Italian citizens are formally residents of the so-called â€śfiscal paradises" like San Marino (a small independent city-State in central Italy) and Monaco.
Authorities say they they expect 100 billion euros ($150 billion) abroad to re-enter Italy with this special measure, which would mean an extra 5 billion euros ($7.5 billion) of tax income for the state.
The conservative government vowed to use this money to build infrastructure, including a mega-bridge that would connect Sicily to the mainland, to renovate the country's two major airports and to partially reduce public debt.
â€śMany talk about all the things we can build with the fiscal shield,â€ť says Guerrieri, the economist. â€śBut I also wonder about the infrastructure we will not be able build in the future because of the rampant tax evasion.â€ť