The Bank of Italy believes that Italians have not declared around $718 billion totally, all of which lies outside the country.
"The time of tax havens has finished forever," the Finance Ministry of Italy stated dramatically after it found much to its surprise and delight that Italians declared as much as $137 billion under a new law that grants amnesty to illegally held assets parked abroad. The unexpected windfall gives Silvio Berlusconi’s government an opportunity to utilize the tax revenues from these new-found funds to stimulate a stuttering economy.
The three-month amnesty, which began in August last year, is known as Scudo Fiscale or Tax Shield. But the amnesty scheme gathered its fair share of controversy, including a well-publicized spat with Switzerland, after Italy blacklisted the noted tax haven, citing a failure to cooperate during the amnesty period. Switzerland, in turn, was also not particularly amused when the Italian government conducted raids on its banks and other financial institutions situated in Italy.
Despite the tensions, the program is a success, so much so that Italy is extending the amnesty up to April 15 after a previous December 15 deadline, with a warning that no further extensions will be possible. What made the amnesty so successful? Was it precedent? This is not the first time that Berlusconi’s government has offered a tax amnesty to citizens. Back in 2002-03, around $112 billion was unearthed as Italians scrambled to declare their assets. What has tempted most Italians this time is the small penalty, and the anonymity given to tax evaders. Such tax evaders were now allowed to pay a mere 5% levy for their undeclared funds, a modest sum by European standards. And Economy Minister Giulio Tremonti said that he expects the extended amnesty to attract another $43 billion. Importantly, the $137 billion cache will generate around $7 billion in tax revenues earmarked for the Italian government, and that is something that Berlusconi can certainly put to good use.
Although not all approved of the way this windfall was procured. Antonio Borghesi of the Party of Values was one of the most vocal critics, telling the Daily Mail that this ‘injection of money from the fruits of tax evasion and illegal activity’ was unethical. Italy is in the process of boosting its economic revival with the economy growing 0.6% in the third quarter after suffering through five successive quarters of a recession. The $7 billion is earmarked for welfare spending, and is expected to inject life into the research sector, and offer small businesses more incentives.
The Wall Street Journal reported that Tremonti called the amnesty a ‘dividend from the G20,’ referring to the G20 meeting early last year when the global powers of the world presented a united force against ‘shady tax havens.’ Despite Tremonti’s optimism that the ‘time of tax havens has finished forever,’ the leniency now granted to tax evaders in Italy may do little to deter the illegal practice in the future. But it is a good start. At least in the immediate term, however, Scudo Fiscale has provided the much needed fillip for an ailing Italian economy limping out of a debilitating recession.
