Italy’s tax evasion problem is larger than previously estimated and increased in absolute terms in 2023, according to new government data, adding pressure on Rome as it tries to manage high public debt and rising borrowing costs.
A Treasury-appointed commission estimated that unpaid taxes and social security contributions reached between €107.9 billion and €112.8 billion in 2023. The upper estimate represents an increase of more than €7 billion from the previous year.
Tax Evasion Remains a Major Challenge for Italy
The latest figures underline the scale of Italy’s long-standing tax compliance problem. The government publishes its estimates with a three-year delay, partly to avoid treating potentially temporary improvements in tax collection as permanent revenue.
The issue has become more significant as Italy manages a large public debt burden. The country's debt-to-GDP ratio is expected to peak at 138.5% next year, making stable government revenues increasingly important for budget planning.
For businesses operating across jurisdictions, changing tax rules and enforcement trends can also have wider implications, particularly where domestic compliance intersects with International Tax considerations.
Relative Tax Evasion Rate Shows Some Improvement
While the total amount of unpaid taxes increased, the report presents a more nuanced picture when tax evasion is measured against the overall amount of taxes owed.
Using this ratio as the preferred indicator, the commission estimated Italy’s propensity to evade taxes at 17.3% to 17.5% in 2023. That represented a decline of around 0.2 percentage points from the previous year.
Over the 2019-2023 period, the indicator improved by approximately 2.5 percentage points, suggesting that the relative scale of tax evasion has gradually declined even as the absolute value of unpaid taxes has risen.
The commission noted that higher taxable income during the post-pandemic recovery and increased inflation may have contributed partly to the rise in the amount of unpaid taxes measured in euros.
VAT Evasion Moves Higher
Value-added tax presented a different trend. The estimated propensity to evade VAT increased to 20.4% in 2023, compared with 19.4% in 2022.
The report nevertheless pointed to a longer-term reduction in the share of Italy’s informal economy, indicating that the broader compliance picture cannot be assessed solely through the annual value of unpaid taxes.
Italy also revised upward some of its earlier estimates for unpaid taxes and social security contributions covering 2019 to 2022 compared with figures published in the previous year's report.
Meloni Government Takes a Softer Approach
Prime Minister Giorgia Meloni's government has generally argued for greater cooperation with taxpayers rather than relying exclusively on tougher enforcement measures.
Since taking office in 2022, the government has introduced several tax settlement and amnesty measures. Meloni's first budget included 12 different tax amnesties that reduced or removed certain penalties for taxpayers who settled outstanding obligations.
The government has also increased the maximum limit for cash payments to €5,000 from €1,000, a move that formed part of its broader approach to tax and payment policy.
Another proposal to reduce sanctions for businesses that refused digital payments was withdrawn following criticism from European Union authorities.
Public Finance Pressure Keeps Tax Collection in Focus
The latest Treasury report comes at a difficult time for Italy's public finances. Higher borrowing costs and elevated government debt mean that policymakers have limited room to absorb revenue shortfalls.
The data therefore presents two different signals: the overall amount of unpaid taxes remains very large and increased in 2023, while the relative propensity to evade taxes has shown improvement over a longer period.
For policymakers, the challenge is to improve compliance and strengthen revenue collection without undermining economic activity or creating excessive pressure on taxpayers and businesses.