Avoiding The Tax Man Could Cost Italians Dearly Tax evasion is a long tradition in Italy. But with the country facing a crippling debt crisis, the new prime minister hopes to convince markets that he can get tough on those who refuse to pay up, and perhaps change Italian attitudes about tax avoidance as well.
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Avoiding The Tax Man Could Cost Italians Dearly

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Avoiding The Tax Man Could Cost Italians Dearly

Avoiding The Tax Man Could Cost Italians Dearly

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From NPR News, it's ALL THINGS CONSIDERED. I'm Guy Raz.

Today, the leaders of France, Germany and Italy sat down to talk about the European economic crisis. At the table was Italy's new prime minister, Mario Monti. Monti's government is struggling to convince the financial markets that Italy has a plan to pay its debts. Among other things, Monti has pledged to crack down on a time-honored tradition in Italy: tax evasion.

NPR's Jim Zarroli explains.

JIM ZARROLI, BYLINE: Tax evasion, it's often said, is a national sport in Italy. Carlo Fiorio is an expert in public finance at the University of Milan.

CARLO FIORIO: Of course, people are not proud of evading taxes, but they don't feel as morally obliged to pay taxes as probably other citizens in other countries.

ZARROLI: Though exact statistics are hard to come by, Fiorio says the evidence is pretty clear that Italy has one of the highest tax evasion rates in the developed world. One think tank estimated that tax evasion costs the government 100 billion euros a year - an astonishing number in an economy the size of Italy's. Part of the problem is Italy's huge underground economy, which is usually estimated at anywhere from 17 to 22 percent of gross domestic product. Take Ermano, a truck driver who's the only one in his family with a permanent job.

ERMANO: (Through translator) My wife is a kindergarten teacher, but she hasn't worked in years. She picks up work here and there, cleaning and sweeping the steps.

ZARROLI: There are a lot of people in Italy like Ermano's wife who work off the books and few pay taxes. Among small-business owners, too, tax avoidance is considered common. Shopkeepers, plumbers, even dentists sometimes offer to reduce your bill if you agree to pay in cash.

Economist Francesco Giavazzi of Bocconi University says, for many businesses tax evasion is a matter of survival.

FRANCESCO GIAVAZZI: If you understand tax evasion for the small company in Naples that has the option, either I don't pay taxes or I close down, you don't justify, but you understand why they do it. They employ maybe 10 people, and they want to keep the thing going. It is harder to understand why the lawyer in Milan would be asked to pay cash, and it does happen.

ZARROLI: And it's not just lawyers. The government has prosecuted fashion designers, racecar drivers and even former Prime Minister Silvio Berlusconi himself for tax evasion. Often the government ends up settling for a fraction of what's owed. Carlo Fiorio says wealthy Italians are adept at shielding income from taxes, and a lot of rich people look poor on paper.

FIORIO: Less than 1 percent of the people earn, say, more than $120,000. At the same time in the last years, you had an increase in luxury cars bought. You had increase in yachts bought. And so clearly, this is hiding something.

ZARROLI: This kind of thing happens in every country. It's just more common in Italy. And it's not just individuals. Italian companies routinely transfer income out of the country to avoid corporate taxes.

FIORIO: The number of corporations that declare zero, negative income is huge, is well above 50 percent.

ZARROLI: The government has sometimes tried to crack down on tax evasion, but those efforts flagged under Berlusconi, who notoriously argued that tax evasion takes place because taxes are too high. With pension contributions, individuals can pay well above 40 percent of their income to the government. Gianfranco Librandi owns an electronics company outside Milan.

GIANFRANCO LIBRANDI: The problem is we have to change the fiscal system. Don't go over 30 percent. It's more reasonable, like they do in many other country in Europe.

ZARROLI: But with its huge debt levels, Italy can't think about cutting taxes right now. Instead, Prime Minister Monti has promised to crack down on tax evaders. The move is already generating opposition. But the new government is hoping that in this current emergency, Italian attitudes toward tax evasion are changing.

Jim Zarroli, NPR News.

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