The relentless campaign against tax evasion is turning into a tough race against time, with the state’s institutional ‘quick fixes’ facing off against the extreme ingenuity of tax cheats.
The decision by the Ministry of National Economy and Finance to extend six key tax incentives through the end of 2027 is undoubtedly a necessary digital bulwark.
However, the hard reality of inspections — with recent successive enforcement actions against major restaurant and bakery chains — shows that half-measures are not enough to curb organised financial crime.
As long as cash remains beyond scrutiny, serving as the ultimate unchecked channel for the long-running ‘sport’ of the shadow economy, state tools will continue to lag behind the technological and methodological ingenuity of those who persist in robbing the public purse.
The ‘Achilles heel’
Cash remains the ‘Achilles heel’ of tax evasion, since the digital system can be completely bypassed when a transaction is paid for in cash, without an electronic payment.
Collecting paper receipts to qualify for an income tax deduction — as was the case in previous decades — may have been superseded by digital technology, but the underlying principle remains relevant: consumers need a direct, tangible incentive to refuse to pay in cash.
Market participants, who bear the cost of tax evasion by their competitors, say the state could introduce a package of radical digital incentives that would turn citizens into the most effective inspectors, tackling tax evasion where the POS terminal is switched off.
Among other things, they propose:
- Introducing immediate cash refunds instead of indirect tax deductions at the end of the year. For example, when a consumer scans a receipt using the Appodixi app, a portion of the VAT (for example, 5% or 10% of the transaction value) could be credited immediately to a digital wallet or directly to their bank account.
- A larger tax break for consumers who ask for a receipt than the benefit of not issuing one. If an electronic receipt in sectors prone to tax evasion entitled taxpayers to a direct tax credit equal to 40% of the expenditure, the incentive would be turned on its head: on a €100 purchase, the customer would pay €100 but save €40 in tax (a net cost of €60). The offer of ‘€80 in cash’ would therefore become unattractive to the customer.
- Making the Tax Lottery an ‘instant’ draw via mobile phone.
- Automatically deducting all household electronic spending — on supermarket shopping, fuel, bills and dining out — from income before tax is calculated.
- Gradually phasing out cash for specific transactions. Cash has already been banned for purchases over €500 and for property purchases; the measure could be extended.
Extending the ‘six’
For now, the government is content to extend through 2027 six provisions relating to income tax (a tax break for electronic transactions) and property (renovations and functional upgrades to buildings, long-term home rentals and purchases of newly built homes).
More specifically:
* The tax bonus for spending using electronic payment methods in 20 professions with high rates of tax evasion is being extended. Thirty per cent of the expenditure is deducted from taxable income, up to a maximum annual deduction of €5,000.
About 4.5 million taxpayers with income from wages, pensions, business and farming activities, and rents will also be required in 2027 to use electronic payment methods — credit, debit or prepaid cards, or e-banking — to pay for personal purchases of goods and services totalling at least 30% of their actual income.
Exemptions
As in previous years, some taxpayers in specific cases of over-indebtedness will be partially exempt from the 30% rule in 2027. They will need to meet lower thresholds, of around 20% or less.
Taxpayers belonging to certain vulnerable social groups, such as older people, people with disabilities and long-term hospital patients, as well as some other groups, will also be fully exempt from the requirement to pay at least 30% of their annual income using electronic payment methods.
* Electronic payments for medical, dental and veterinary services will continue to count double towards the requirement to cover 30% of annual income with electronic receipts.
* Tax deductions will continue to be available for expenditure on the aesthetic, functional and energy-efficiency upgrades of buildings, provided the work is paid for exclusively by electronic means. The provisions allow annual renovation and functional-upgrade expenditure of up to €16,000 to be deducted from the owner’s taxable income.
The deduction is spread equally over the following five years. In each of those years, it can therefore reach up to €3,200 (€16,000 / 5 years). The expenditure must relate mainly to labour costs, while the cost of materials eligible for deduction cannot exceed one-third of the cost of the work.
The 15% tax on capital gains from property sales remains ‘frozen’, facilitating transactions in the property market.
* VAT on sales of newly built homes remains suspended. At present, buildings with construction permits issued on or after 1 January 2006 that are still held by the construction companies that built or completed them are not subject to 24% VAT on their tax-assessed values when first sold for use, provided the developers have applied for a suspension of VAT.
* A tax incentive is available for long-term rentals of properties that are vacant or let on a short-term basis. The incentive is intended to encourage property owners to offer vacant homes or properties rented out short-term for long-term rental.
Under the provisions as now amended, owners who offer homes that were vacant or let short-term for long-term rental by 31 December 2027 will be exempt from income tax on the rent they receive for three years.