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Italian VAT rise has no effect on inflation figures

  • Dec 3, 2013 | Richard Asquith

Italian VAT rise has no effect on inflation figures

Retail prices continued to fall despite last month despite Italy’s VAT rise to 22% on 1 October 2013.

Italy heads into deflation

The Italian statistical institute published on Friday 27 November pricing information for Oct/Nov showing that the Consumer Prices Index had fallen by -0.4%.  This reflects the Italian economic position as the economy remains in recession after nine quarters – the longest in the Eurozone.  This, driving rising unemployment, means there is a shortage of disposable income so shop prices are in decline.

Second Italian VAT rise has limited impact

Generally, a 1% rise in VAT such as Italy’s October rise to 22% would create 1% to 2% short term inflation as retailers attempt to pass on the tax increase.  However, these latest inflation numbers show that shops are having to absorb the VAT hike and face a further squeeze on their margins. Istat estimated that there was only 0.4% inflationary impact because of the VAT rise.  This implies an actually retail prices fall of -0.8%.

Italy already raised VAT 1% in 2012 to 21% in 2011 during the Euro crisis.  The average EU VAT rate is now over 21%.

VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which won International Tax Review's 2020 Tax Technology Firm of the Year. Richard trained as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.