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Italy Considers Penalty on Cash Withdrawals to Fight Tax Evasion

Italy Considers Penalty on Cash Withdrawals to Fight Tax Evasion

A radical plan to discourage cash payments and reduce runaway tax evasion has some Italians up in arms.

With one of the highest tax rates in Europe, Italy lost 107.5 billion euros ($118.5 billion) to tax dodging and under-reporting in 2016. The country has an evasion rate of about 30%.

The idea: offer consumers tax credits for settling their debts electronically while imposing a penalty on cash withdrawals above a monthly threshold.

Reducing the use of cash and encouraging electronic payments would go a long way toward cutting into an underground economy that accounts for more than 12% of gross domestic product.

Shops, restaurants and other small businesses often refuse electronic payment, citing high costs or broken card-reading equipment. Many fail to report the resulting cash transactions.

Italians Like Their Cash

Most oppose imposing a penalty on cash withdrawals.

Interestingly, the cap-and-penalty proposal comes from the in-house think tank of Confindustria, Italy’s business lobby. Companies and professionals rank among Italy’s biggest tax dodgers, with an evasion rate almost 19 times higher than that of salaried employees.

Small business owners were quick to criticize the proposal, as were a number of politicians, including far-right populist Matteo Salvini, who slammed the proposed levy on cash as a Soviet-style proposal.

Previous initiatives to reduce cash usage have also proven controversial.

European Central Bank President Mario Draghi was forced to defend a decision to stop printing 500-euro notes after critics charged him with launching a war on cash.

Some supporters of cash point to the anonymity of paper money as a protection from creeping state surveillance.

Still, the trend in Italy is to rein in the use of cash, and starting this month, lenders must notify the Bank of Italy’s anti-money-laundering unit of any monthly movement of over 10,000 euros.

And for the small businesses grumbling about the cost? Premier Giuseppe Conte’s government has pledged to make all payments more transparent -- and to drastically reduce the expense of electronic transactions.

Source: https://www.bloomberg.com


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