Wealth Tax and Bitcoin Taxation: Why They Are Unworkable in Italy

Emerging Trends in Taxation and the Hidden Economy in Italy

Recent data from Istat reveals significant shifts in Italy’s hidden economy.
In 2022, it increased by €17.6 billion, reflecting a 9.6% rise compared to 2021, contrasting with an 8.4% growth in current GDP.
The underground economy, excluding illegal activities, reached nearly €182 billion, while illegal activities approached €20 billion.

This raises the question: how much of the “hidden” economy could potentially surface within Italy’s estimated €201 billion? The emergence of this sector would likely not yield substantial tax revenues, especially considering the exclusion of the illegal portions and the negative impact on consumption resulting from the lower involvement of the underground economy.

Tax Evasion and Proposed Fiscal Reforms

Tax evasion remains a key focus for Italian authorities, evidenced by Deputy Minister Maurizio Leo’s comments proposing increases in tax rates on bitcoin capital gains from 26% to 42%.
Additionally, reforms to the web tax aim to eliminate previous exemptions and thresholds.
However, the revenue potential of these actions remains uncertain.

Dino Crivellari emphasizes the challenges in assessing taxable assets, particularly concerning a potential wealth tax which may only target the wealthiest 10%.
There’s concern that this could promote tax evasion and capital flight as wealthier individuals seek to protect their assets.

Lessons from Other Countries

The example of Norway, which introduced higher wealth taxes, illustrates the risks of such measures.
The country saw a mass exodus of affluent individuals to Switzerland, resulting in a considerable loss of expected revenues.
The intended increase of €146 million became a dramatic shortfall, highlighting potential pitfalls of radical taxation reforms.

Critics caution against increasing cryptocurrency taxation without regard for global trends.
Countries like France and Germany are making efforts to attract major crypto players despite their own taxation challenges.

A Shift Towards Revenue Generating Investments

Ultimately, Italy’s high private wealth could be redirected towards real economic investments, generating increased tax revenues from labor and enterprise rather than capital gains.
Shifting focus from burdensome taxation on capital to fostering productive investments could lead to sustainable growth and beneficial fiscal outcomes.

Incentivizing wealthy individuals to convert assets into active economic contributions might offer a pathway to enhance public revenue without stifling investment or driving wealth abroad.