Equitalia, the Anomalous Tax Collection Agency

ITALY'S MODEL OF COLLECTING TAXES DIFFERS FROM ALMOST EVERY OTHER EU COUNTRY, WHILE FISCAL DEBT STAYS HUGE. THIS SHOULD BE THE STARTING POINT OF REFORM

by Alessandro Santoro
Translated by Alex Foti

Renzi’s statements on the government’s intentions to abolish Equitalia, Italy’s agency for the recovery of unpaid taxes, are an opportunity to ponder tax collection. For many years, taxes in Italy were paid though banking intermediaries operating without incentive nor constraint. This resulted in a spiraling accumulation of taxes that were due but had not been paid, thereby limiting the risk for tax evaders to be discovered. In 1998, the Visco Reform introduced the agency model based on the idea of several agencies ascertaining and administering taxation. This is the model that is prevalent in advanced countries today, since incorporating the tax agency within the Treasury is seen as less efficient because it could be more exposed to political interference. However, the implementation of the agency model in Italy significantly differed from what happened in other countries. The one major difference is that the newly-constituted Agenzia delle Entrate (Agency for Fiscal Revenues) was not put in charge of the collection of tax payments and management of fiscal debt. This task was entrusted to Equitalia in 2005, a company where 51% of stakes belong to Agenzia delle Entrate, and the remainder are controlled by INPS, Italy’s social security agency, which initially acted as sole collector of taxes and contributions owed by all central and local administrations.

At the height of the crisis, Equitalia became a polemic target for its alleged severity in treating taxpayers in arrears. However, if you look closely, the Italian anomaly is not about giving tax collectors strong powers, but to give such powers to a company external and different from the fiscal revenues service (the Agenzia delle Entrate) which collects income statements and verifies the calculation of individual taxes. Such a separation of powers only occurs in 7 out of the 34 OECD countries included in the Tax Administration database. In fact, outsourcing tax collection reduces economies of scale and organization, and can also lead to inefficient management, particularly when the agency in question receives, as is the case with Equitalia, a financial reward for moneys it manages to collect that is way above market levels. It is thus likely that tax collection will soon be brought back into the fold of Agenzia delle Entrate, as occurs in all major EU countries. However, such a change will have to start confronting a stark fact, namely the size and nature of the country’s fiscal debt, in turn due to the enormous tax evasion still existing in Italy. According to OECD statistics, at the end of 2013, Italy’s stock of uncollected taxes amounted to €713 billion (compared to €40 billion in France and €23 billion in Spain), 25% of which, i.e. about €180 billion, were uncollectable for practical purposes. Any reform of Italian tax agencies will have to start from here.