# Italy's Dual Tax Threshold: European Limits and Domestic Bureaucracy The 2027 budget creates a complex tax gap between income tax and VAT. - **Source:** [Il Fatto Quotidiano](https://www.ilfattoquotidiano.it) - **Published:** 2026-11-06 - **Topic:** [Finance](https://brifing.si/c/finance) - **Original article:** - **On Brifing:** https://brifing.si/s/cb8ec63e-e1b7-400b-9a63-49e79b6539c9 ## The 2027 Tax Discrepancy Starting January 1, 2027, the Italian government will raise the flat tax threshold to 100,000 euros for income tax. However, the VAT exemption limit remains fixed at 85,000 euros. This creates a dual-track system where businesses earning between these two figures receive income tax relief but must still manage complex VAT obligations. ## Brussels Versus Rome While the government blames European Union constraints for the 85,000 euro VAT ceiling, the reality is more nuanced. Italy previously accepted this limit, and the administrative burdens associated with VAT are decided domestically in Rome. The government currently claims it is waiting for EU authorization to raise the VAT threshold further. ## Economic Impact of VAT VAT significantly affects pricing strategies for small businesses. A hairdresser earning above the threshold must charge the standard 22 percent VAT, forcing them to increase prices to maintain the same net income as a competitor under the exemption. This creates potential market distortions that the European Union aims to limit through thresholds. ## Inflation and Real Value The 85,000 euro threshold, established by the 2020 EU directive, has been heavily eroded by inflation. At current price levels, the original 2020 limit would correspond to approximately 105,000 euros today. Consequently, a 100,000 euro threshold would actually remain below the real-term value of the original EU-mandated limit set years ago. ## Administrative Burden Discretion The government has the power to simplify VAT compliance for small businesses without waiting for Brussels. Historically, Italy utilized specific legislative articles to exempt new businesses from periodic VAT filings and payments. Current electronic invoicing systems already provide the tax authorities with necessary data, making further administrative simplification entirely feasible through amendments. ## Fiscal Inequity Concerns The Parliamentary Budget Office noted that expanding the flat tax regime primarily benefits wealthier taxpayers rather than marginal ones. While the government frames this as simplification, technical reports suggest businesses choose the regime for economic convenience. The estimated annual cost to the state treasury for this expansion is approximately 300 million euros. ## The Fiscal Drag Effect While the flat tax threshold is rising by 54 percent since 2018, standard income tax brackets remain largely stagnant. This phenomenon, known as fiscal drag, causes tax burdens to increase automatically as inflation pushes salaries into higher brackets. This effectively raises taxes on employees without any formal legislative vote or adjustment. ## Constitutional Progressivity Issues Article 53 of the Italian Constitution mandates a progressive tax system based on contributory capacity. The current policy creates two different standards: one for flat-tax participants and another for wage earners. By failing to adjust brackets for inflation, the state creates an imbalance in how different citizens contribute to public expenses. ## Sources covering this story - https://www.ilfattoquotidiano.it/2026/11/06/manovra-tetto-flat-tax-analisi/8561851/ — --- _Summary written by Brifing from the original reporting. Copyright in the original article belongs to its publisher; read the full piece at the link above._