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lunedì 10 marzo 2008

The Tax on Movable Wealth: the blueprint of the first Italian Income Tax

When the Government of the Kingdom of Piedmont and Sardinia (later the Italian Government) planned the implementation of a Tax on Movable wealth (considered as a tax to be applied on commercial and industrial business income only) the constitutional and political framework of the soon to be Kingdom of Italy was absolutely peculiar in a tax law perspective.
The Constitution of the Kingdom, dated 1848 (the “Albert’s Statute”[1], later the first Italian Constitution), made no reference to the duties of social, political and economic solidarity between individuals and to taxation.
Nonetheless, the inadequacy of a proportional taxation was evident to the policymakers of that age, such as the Ministers Mr. Minghetti and Mr. Sella: the ones who implemented a unitary system of taxation after the reunification of the Country. The Italian academics realized that only thirty years after, and under the influence of the German doctrine, Public law and the great success of the Miquelsche Preussische Steuerreform.

Another preliminary aspect to be taken in due account at the beginning of this research is that the language of the lawmaker in 1848 couldn’t be so accurate as it will be in the subsequent century. Most of the today conceptual differences and distinctions weren’t perceived in that time: words such as “Tax”, “Duty”, “Fee”, “Contribution” were considered as synonyms. A clear evidence of this situation is the wording of the scientific books of that age, where writers indifferently used the above-mentioned concepts.
For all these reasons, historians of Tax law wishing to investigate the origins of National taxation in Italy and the origins of Business Income Tax in the country must be very careful while interpreting the nomen juris attributed to specific taxes by books or records of that period. Often the word “Tax” was used with the French meaning that inspired in those years the Public Law in Piedmont.

In the very years after 1848, taxation on real estate was still carefully exercised, and all in all was not considered as a priority because (with the only exceptions of some happy areas in Lombardy, Veneto and Genoa regions) the influence of the business middle class (bourgeoisie) was similar to its political influence (that is, nearly irrelevant). It quite surprising therefore that, in a political framework ruled by the landlords, the Italian legislator was able in 1864 to implement a tax (the Tax on Movable Wealth) levied on a kind of income that had to boom only twenty years later.
When the tax was implemented, nearly all the national GDP was given by farmers and by the exploitation of the soil. A tax on Business (i.e. Commercial or Industrial) Income and on Business profits could be considered as a little more than a theoretical exercise.

In any case, the new tax had many features that were absolutely innovative for those years.

First of all, it got rid of the traditional presumptive assessment that Italian Tax administration derived from the French assessment based on the “external benchmarks” (signes exterieurs). That method was, in the eyes of the French, the only one capable of striking a balance between two opposite needs: the need for a quick and cheap administrative procedure and the need for the respect of the liberté of the citizen – taxpayer. As a matter of fact, it did not require any kind of inspection on the taxpayers and any inquiry on their actual ability to pay.

The Italian legislator abandoned the French model and adopted the English one: more to the point it was inspired by the assessment model of the “Income tax”. While it is correct to say that the English experience in Tax assessment was relevant for the Italian system of that time, the aforementioned model was implemented only in part.
The first difference was the nature and the application of the tax: while the English one could be considered as a “mixed” one, being applicable both to British citizens and foreigners carrying on their businesses in England, the Italian one was “real”, hence applicable to Italians only.
This was all but unreasonable for the Academics of that time, as far as according to the Italian legal tradition only the citizen had to pay taxes as far as he was the only beneficiary of the activity of the State and of the (very limited) welfare. Even the rates were different, being the English ones two third lower than the Italian ones.

Other differences between the English tax and the Italian one were given by the relationship between Income tax (and Movable Wealth tax) and Land tax.
While in England these two taxes coexisted (the latter yielding only the 45% of the gross revenue of the State), in Italy it still produced (in 1864) most of the national revenue.
The last remarkable feature of the Tax on Movable wealth was the possibility to tax differently different kinds of income.
More to the point, the tax on Movable Wealth allowed and emphasized the so called “Qualitative Discrimination” of income. Incomes of same amount were taxed differently (i.e. with different rates) according to their source (labour, capital or both) and their duration (temporary, perpetual).
However, while Italy discriminated between earned income and unearned income already in 1864, the ways and means in which this sort of discrimination was later criticized by Academic and considered inadequate and partially inconsistent with the aim pursued.

The forthcoming paper shall deal with all these aspects investigating the influence of the English model in the evolution of Italian tax law, and more to the point on the tax on Movable wealth considered as the prototype of the Italian Income tax.

[1] It was named after the King who adopted it, Carlo Alberto di Savoia – Carignano.

By Cesare Belluzzi and Marco Greggi

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