Italy’s Love of Cash Is Tested by Conte’s Tax Capture Trick
Italy’s Love of Cash Is Tested by Conte’s Trick to Capture Tax
(Bloomberg) -- Italian Prime Minister Giuseppe Conte is about to embark on the country’s most experimental stimulus of the coronavirus crisis yet in a bid to wean citizens off cash -- and the tax avoidance that comes with it.
His government is working on a measure to refund 10% of payment card transactions, handing back a maximum of 300 euros ($354) per person, in a stimulus that runs until 2022, according to officials with knowledge of the plan. As a sweetener, participating consumers will also qualify for a lottery with a prize pot totaling 300 million euros.
Ministers in the euro region’s third-biggest economy are hoping an emergency policy aimed at encouraging spending might also shift habits in a population stubbornly resistant to digital payments. That could break new ground in the fight to shore up the tax take and capture undeclared economic activity estimated to total 12% of gross domestic product.
“In our country, the hard task is not making the rules, but to enforce them,” said Giorgio Di Giorgio, a professor of monetary theory and policy at Rome’s Luiss University. “That’s why I think this measure could work. It would be a voluntary act for people, and might gradually change consumers’ behavior.”
In the meantime, retail sales in Italy are showing signs of timid recovery with a 0.8% increase in August compared to a year ago, national statistics bureau Istat said Wednesday. They had plunged almost 27% at the height of the pandemic in April.
The difficulty in ending Italians’ love affair with cash is a lesson successive governments have learned the hard way. When former Prime Minister Mario Monti limited physical payments to 1,000 euros during the euro zone’s sovereign debt crisis, the measure proved so unpopular it was immediately changed by his successor, Matteo Renzi.
Game Plan
Aside from switching tack by opting for incentives, Conte’s use of a lottery capitalizes on a national affinity for such games, while the measure also seeks to tap advances in technology by deploying an already existing mobile phone app that citizens must download to access the benefit. The government has already announced another lottery encouraging customers to ask for receipts in stores.
The government’s push would build on a shift in attitude that already began during the current pandemic as people switched to buying items online using digital payments.
“Covid-19 changed a lot,” said Enzo Quarenghi, Italy country manager for Visa, who said millions of users who didn’t normally do online payments have started doing so. “This behavior is persistent now.”
Conte’s plan, due to be finalized in the coming weeks, forms part of his government’s efforts to free the economy from the curse of the coronavirus after Italy suffered Europe’s worst initial outbreak of the disease, and a correspondingly crippling effect on growth.
With 209 billion euros of European Union recovery funds coming its way -- including 21 billion euros earmarked for next year -- the country faces an added onus to show its donor neighbors that it wants to change its ways.
Twenty-three nations in the region use cash less than Italy does, with one official estimate from 2016 reckoning that 86% of transactions there took place with physical money.
“In France or Germany, there is already a strong use of digital payments,” said Rosy Alaia, head of payments of Banca Sella, who has been involved in government talks to prepare the measure. “In some countries there have been more investments in infrastructure and networks for instant payments.”
Global Clampdown
Italy is now building up a stake in that area in other ways. The state lender Cassa Depositi e Presiti SpA will be an anchor investor in the merged outcome of Nexi SpA’s acquisition of SIA SpA, set to form one of Europe’s biggest payments providers. The deal was announced this week.
The country’s cashless strategy is developing against an international backdrop of clampdowns on illicit transactions, from rules allowing the exchange of information between tax authorities on bank account holders, to the European Central Bank’s decision to stop issuing its highest-denomination 500-euro note.
While Italian ministers are trying to tailor the plan to encourage people to make small payments digitally as well as larger amounts, the fees charged by credit-card providers irk some retailers. All of them should have facilities to pay digitally, though many don’t, sometimes to dodge taxes.
Prohibitive costs and patchy internet don’t help however, as Paolo Costantini can attest. The owner of Il Gelatone, an ice-cream parlor a few streets away from Rome’s Colosseum, reckons cash is quicker and easier for his business.
“We usually deliver cones in 15 seconds, and we need 20 seconds to make a card transaction,” he said, while serving a customer whose first card payment promptly failed. “In Covid times there aren’t so many people, so it’s a small problem. But when there’s turnout, it’s difficult.”
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