Small shops: 1.5 million flat-rate rental properties in the spotlight
Deputy Minister Leo has revived the idea of a flat-rate tax on commercial leases. A balance is needed between the scope of the tax and the revenue it generates
21 per cent flat-rate tax also applies to rents of 1.5 million of small shops. Alongside housing benefits, the taxation of lettings could also form part of the ever-expanding section of the forthcoming Budget Bill dedicated to the property sector. This time, the focus will not be on short-term lettings, as was the case in recent Budget Bills, but on commercial property, on which various organisations – starting with Confedilizia and Fimaa Confcommercio – have long been calling for greater attention from the tax authorities, in order to support local shops, neighbourhood shops, cafés and restaurants which, particularly in small towns, are finding it increasingly difficult to survive.
The Deputy Minister for the Economy, Maurizio Leo, has spoken about the measure in recent days: ‘I think it can be done,’ he said, ‘if we can find the resources. That is the mantra I always put forward. We must not let our guard down.’ In this way, it might be possible to achieve what the tax reform failed to do. In fact, the enabling act already provided for the possibility – which remained unimplemented – of applying a reduced rate of tax to commercial properties let by private individuals to persons carrying on ‘a business, a trade or a profession’.
The previous one
This flat-rate tax, in fact, has a precedent: it was introduced, and subsequently not confirmed, by the 2019 budget for contracts entered into that year. That version consisted of a 21 per cent rate on rental income from properties classified as C/1, with a floor area of up to 600 square metres. At the time, these properties generated rental income of €1.1 billion, which was taxed under the personal income tax (Irpef) scheme. The report accompanying the budget estimated that 88 per cent of those receiving this rental income would have been better off switching to the flat-rate tax. The assumption was that, once fully implemented, on the one hand, there would be a recovery in tax revenue of around 200 million euros; on the other hand, that just over €360 million would be lost through reduced personal income tax (Irpef), registration tax and regional and municipal surcharges. The cost of the measure ultimately amounted to approximately €160 million per year.
The impact of the measure today
Today, according to the updated estimates prepared by Confedilizia, the total amount of property rental income has risen slightly compared with 2019 (around 1.3 billion euros), but the marginal tax rate is slightly lower (falling from 35 per cent to 33 per cent), as a result of recent reforms to personal income tax. The impact of the measure, therefore, is expected to be similar, around 170 million euros per year. However, the effects will be widespread, given that, according to land registry statistics, there are 1.5 million properties in category C/1 owned by private individuals, with an average floor area of 66 square metres: the vast majority would therefore fall under this version of the reduced tax rate if the ceiling were set at 600 square metres. With one aim: to combat the desertification of historic centres and suburbs and to support the continued presence of commercial and craft businesses in our cities.
It is not certain, however, that the Government will replicate the 2019 framework exactly. Deputy Minister Leo’s idea is to seek a ‘fair balance’, which could lead to the new measure being limited ‘to certain categories’. In practical terms, then, the most feasible option could be an adjustment to the square metre threshold below which the 21 per cent flat-rate tax applies, without replicating the 600-square-metre cap. This would be a way of minimising the impact on public finances.
