a general income tax, with the corollary that all other direct taxes be repealed. Both of these propositions were negatived, and the commission contented itself with a number of reforms, all of which are embodied in the law of 1877.1 The law of 1877 made comparatively slight changes in the substantive provisions. The rate of the tax remained the same, namely 12 per cent, to which, however, were to be added the one-tenth of 1866 (or 1.2 per cent) and a further addition calculated at 2 per cent of the tax for expenses of administration, as well as a further local duty, varying from place to place, to be applied to the collectors to whom the tax was farmed out. The total rate therefore was slightly under 131 per cent, i.e., 13.2 plus the further additions. The abatements were slightly changed so as to be as follows: 250 lire on incomes from 400 to 500 lire; These figures, however, applied only to Schedules B and C. In Schedule D the old system still continued. As the other provisions of the law of 1877 are virtually in force to-day, they will be considered below, and we shall limit ourselves here to calling attention to the changes introduced by the laws of 1894 and 1907. In 1894 the rate of the tax was increased from 13.2 per cent (with the slight additions) to 20 per cent. The reason of this was an effort to reduce the interest on the public debt. As the fiscal situation at the time would not admit of a direct conversion of the public debt, the government thought it would secure the same result indirectly by increasing the rate of the tax. But in order not to augment the burden on the other taxpayers, the proportions in the other schedules were reduced. Consequently, in Schedule B the incomes were no longer assessed at six-eighths of the real amount, but only at twentyfortieths, that is, one-half; and in Schedule C incomes were 1 Law of August 24, 1877. assessed not at five-eighths, but at only eighteen-fortieths. In Schedule D, incomes were assessed not at four-eighths, as before, but at fifteen-fortieths. This would practically mean the same rate of tax as before. Finally, in order that the government securities might not appear to be singled out for higher taxation, Schedule A was divided into two parts: A-1 was now made to include not only government securities, but also those of corporations guaranteed or aided by the government, and state lottery premiums. All the incomes in this subclass were to be assessed at their full amount. On the other hand, a new sub-class A-2 was introduced, consisting of other incomes derived from capital of any nature, and these were now assessed at only thirty-fortieths of their full income. The net result was that with a normal rate of 20 per cent the actual rates paid by the different schedules would be as follows: A-1 20 per cent; A-2 15 per cent; B 10 per cent; C9 per cent; D 7 per cent. The law of 1894 also further complicated the abatements, which, with the additional change introduced in 1907, will be explained below. § 3. The Actual Conditions Coming, then, to a consideration of the tax as it exists at present, it may be said that the income tax applies to all in. comes save those from real estate. It includes, however, income from agricultural industry that is, from the tilling of the land, but only in case these agricultural profits are made by individuals who do not own the soil. This distinction between agricultural profits made by owners and by non-owners is of course as illogical as it is unjustifiable. The tax also applies to certain revenues like tithes, etc., which are not liable to land tax. Moreover, the farmers who work the land on shares, on the metayer system, are subject to a tax of five per cent on the amount of land tax paid by the land-owner when it is over fifty lire. Otherwise they are exempt. The tax is payable by Italians and foreigners alike, by individuals as well as by corporations, but only on incomes received in Italy. Quite a discussion took place on this point when the tax was first imposed in 1864; but at that time the theory of taxation was still that of reciprocity, and since the government was not supposed to protect property outside of the country, it was decided not to tax incomes therefrom.1 The more modern view considers this position mistaken, not only because it puts citizens and foreigners on the same plane, but because there is no reason why a citizen who happens to invest his money abroad should be free of all obligation to the state.2 The tax is imposed on the head of the family, including the income of the wife and of the minor children. The legal exemptions include the actuarial reserve of life insurance companies, the income of mutual aid societies (with some slight exceptions), and the income of the royal family. Charitable institutions are not exempt. In addition to the legal exemptions, however, it has become the custom virtually to exempt all day laborers. According to Garelli, the law actually reaches only about 12,000 workmen. In 1897 the Minister of Finance, Branca, desired to enforce the law in the case of private laborers as it is already enforced with the public employees, and he suggested that only those with an income under three and a half lire should be exempted. But the law failed of adoption, and when the same principle was sought to be enforced by ministerial ordinance in 1899, the decree soon became a dead letter.4 The incomes subject to the law are declared to comprise not only the certain and fixed incomes (certi), but also the uncertain and variable incomes coming from business or individual exertion (incerti and variabili), and the tax is stated to be applicable on the basis of the assured or presumed 1 Bruni, op. cit., pp. 23, 24. 2 Cf. the discussion on these points in Chailley, op. cit., p. 223, and Spoelberch, op. cit., pp. 37-39. 3 A. Garelli, Le Imposte nello Stato Moderno. Milan, 1903, p. 158. 4 Cf. Magrini, Le Imposte di Richezza Mobile nei Rapporti con le Societa Com merciale obbligate alla Presentazione dei Bilanci. Milan, 1903, p. 189. (presunti) incomes of the individual. The tax is paid in three different ways. The first method is what is called that of holding back, or retention (ritenuta). For instance, the tax on salaries of public officials, as well as on the interest of public securities, is withheld or retained by the government. A sub-class under this method is the system of so-called direct payments (versamenti). The income tax due from savings banks, the Red Cross fund, the Sardinian War securities, the fund from which the clergy are paid, etc., is also withheld or paid directly by the state. The second method is that of register or rolls (ruoli nominativi), that is, payments made directly by individuals who are put on the tax rolls. Finally, in the case of corporations, of employers, and of all debts in general, the tax is inscribed on the register not in the name of the person who receives the income, but in the name of the person who pays it out. Although the names appear on the register, it is the names of the persons who pay the income and not of those who receive the income. This method may therefore be put into a third class, and is sometimes called the method of ritenuta di rivalsa. Strictly speaking, this method, it will be seen, includes some of the characteristics of each of the preceding methods. Taking the first and the third methods together, it will be seen that the principle of stoppage at source is applied at all events in part to the Italian tax. The taxpayers are all required to make their declarations. After the amount of gross revenue has been determined, they are reduced to the amounts of assessable incomes as fixed by the law. The incomes are divided into what is practically five schedules. Schedule A-1 includes the income from capital and so-called perpetual revenues, which are derived from state or provincial securities or loans, including government mortgages, ground rents, and fixed annuities, as well as income from securities issued by corporations that are guaranteed or subsidized by the state, and the income from lottery prizes. In this schedule the incomes are assessed at their full amount, and the rate is therefore twenty per cent. Schedule A-2 embraces all other income derived from capital, and all other perpetual revenues which are not included in Schedule A-1. Here the assessable income is fixed at thirty-fortieths of the real income; the rate, therefore, is really fifteen per cent. Schedule B includes the so-called temporary mixed revenues, that is, incomes derived from the coöperation of capital and labor. Practically it means the income derived from industry and trade. Here the assessable income is fixed at twenty-fortieths of the real income, — that is, the rate is ten per cent. Schedule C comprises the temporary incomes derived exclusively from individual exertion, such as wages or professional earnings. Here the assessable income is fixed at eighteen-fortieths of the real income, the rate consequently being nine per cent. Schedule D includes the incomes from pensions and salaries paid by government and the wages of public employees. Here the assessable income is fixed at fifteen-fortieths, that is, the rate is seven and onehalf per cent. All these rates are increased by two centesimi per cent to cover the expense of verification and collection. The abatements are fixed differently in Schedule D from those in Schedules B and C, and are arranged according to the list mentioned above.1 But a complication is introduced by the fact that in the case of incomes subject to abatement, the reduction of the general income to the assessable income follows the old figures of the law of 1877, and not the new figures of the law of 1894. That is to say, the "net reduced" incomes are arrived at by reducing the incomes in schedules B, C, and D not to twenty-fortieths, eighteen-fortieths, and fifteen-fortieths of their actual amount respectively, but to six-eighths, five-eighths, and four-eighths respectively. The consequence is that in Schedules B and C the old abatements of 250, 200, 150, and 100 lire, respectively, became new abatements of 166.66, 133.33, 100, and 66.66 lire. For instance, the recipient of an income of 600 lire in category B, who would, according to the calculation of 1894 be exempt as not having the minimum of subsistence of 400 lire, is actually 1 Supra, page 344. |