New law aims to liberalise market and curb tax evasion

A new bill issued by the Minister of Economic Development at the beginning of July 2006 introduces important measures to increase competition in the market. First, it liberalises certain activities and sectors, such as taxi services, bakeries and legal services. At the same time, the new law proposes changes to the tax system, namely modifications to the tax on property purchases and new value-added tax rates on certain products. In some cases, organisations in the sectors affected have reacted strongly against the bill.

Less than three months after the new government took office, the Minister of Economic Development, Pier Luigi Bersani, has issued a decree law (DDL 4 July 2006, No. 223) containing measures aimed at ‘economic and social recovery, and the curbing and rationalisation of public expenditure’. The new law also sets out ‘measures in the matter of revenues and to combat tax evasion’.

Main points of new law

The 41-article decree envisages a wide array of complex measures. The following key elements pertain to market competition and the professions.

• Fixed or minimum rates for the liberal professions, such as the practice of law, have been eliminated, and it is now permitted to advertise services, which were previously subject to limitations.

• Restrictions on the production of bread and on the number of bakers are abolished; furthermore, the procedure for setting up a bakery business has been simplified.

• Class actions by consumers and users, meaning common litigation for large numbers of people, are introduced in compliance with the relevant EU directive.

• Non-prescription medicines may also be sold by supermarkets. The rule whereby the heirs of pharmacists could take over and run pharmacies even if they did not possess a suitable degree or were not enrolled on the professional register has been abolished. However, following protest strike action by pharmacists, their representatives and government officials had scheduled a meeting to discuss this matter further.

• In relation to civil liability in respect of motor vehicles, an insurance broker may represent several companies and offer the most advantageous type of insurance to the customer. Moreover, in the event of an accident, the claimant motorist may have his or her damages reimbursed by his or her own insurance company rather than by the offender’s company.

• A legal contract was previously required to transfer ownership of cars, motorcycles and boats. The new bill states that sales can now be registered by the municipality, thus greatly reducing the associated costs.

• The bill introduces measures for managerial transparency and the right to close a current account without incurring any expenses in the case of non-timely notification of changes by a bank.

• The municipalities are given greater powers to define additional public transport services, and to regulate traffic in city centres in general.

• The municipalities are also given responsibility for the issue of additional taxi licences in periods of peak demand for taxi services. The taxi drivers have accepted the need for greater flexibility in duty schedules and the introduction of flat-rate tariffs in certain cases. Nevertheless, their negative reaction has been one of the strongest to the new bill, with a number of strikes being called, sometimes without prior warning.

Changes in taxation

In addition, the new law introduces certain fiscal measures, which are intended to curb tax evasion, avoidance and erosion.

• To reduce tax evasion, a measure in the bill abolishes value-added tax (VAT) on property transfers and leases, which has been a source of much evasion to date. Another measure extends the tax authorities’ powers by requiring financial intermediaries to furnish lists of their customers. Contributors of small amounts become exempt from VAT and may pay property tax at the same time as their annual tax declarations so that they can offset credits relative to other taxes.

• An example of tax avoidance is provided in the case of night clubs, which request customers to buy a drink at a rate of 10% VAT rather than purchase an entry ticket, on which 20% VAT is charged. Another example of tax avoidance is the deductibility of VAT on company vehicles, which has now been restricted by the new bill.

• In order to combat tax erosion, the bill seeks to rationalise the system of tax relief and exemption. For example, VAT has been increased on certain products, such as confectionery. In some cases, exemption from property tax on church-owned real estate has been eliminated, while the taxation on incomes from stock options has risen from 12.5% to the same rate as income tax.

The bill contains various other provisions, ranging from measures to combat illegal gambling to computerisation of the tax system, and restrictions on public spending.

Reaction to new law

This latest bill has also been called ‘the citizen-consumer package’ because it is intended to make certain prices and tariffs more transparent and fair. The measures set out in the law, in fact, have been met with unanimous approval by consumer organisations. Some opposition parties have acknowledged the need for liberalisation measures, while others have accused the bill of being targeted at categories traditionally the focus of centre-right organisations.

Representatives of taxi drivers, bakers, lawyers, pharmacists and tax consultants have mobilised to complain, in particular, about the lack of concertation prior to the drafting of the bill. In the case of taxi drivers, trade unions requested meetings with the government and took strike action to gain the government’s attention; the meetings were aimed at jointly revising the measures affecting them. In this case, a final new agreement was reached.

In respect of the professions, some representative trade unions agreed on the measures put forward by the bill, conceding that, for a long time, the privileges of many lawyers and pharmacists, for example, have negatively affected young workers in these categories. They agreed that they could ‘contribute to the design of a policy meant to curb tax evasion’.

The Confederation of Italian Industry (Confederazione Generale dell’Industria Italiana, Confindustria), for its part, reacted positively to the bill and declared that ‘finally, the issue of competition has become central and will fulfil Italy’s economic and development needs’.

Manuela Galetto, Ires Lombardia