"Austerity for all" is the message from Italy's Prime Minister Mario Monti. But with a national debt of over € 1.9 trillion Euro (NZ$3t) the Prime Minister is looking for new streams of tax revenue. And his latest target is his very own Roman Catholic Church.
Since 2005 the Roman Catholic Church has held an exemption from paying property tax one of several fiscal perks introduced by the previous Berlusconi administration. A property tax is payable on the church's land and buildings portfolio.
With every Italian being asked to pay their share many consider that it is only fair that the Church also contributes. Public support was shown by more than 130,000 people signing an online petition within 48 hours of the austerity package being released demanding the church be stripped of its tax exemptions.
Currently all religious institutions are exempt from paying Italian property tax on holdings that contain any religious element such as accommodation for priests or a chapel for worship. This creates a grey area for mixed use properties with many large commercial properties being tax exempt due to a relatively small religious area.
The exemption for properties used exclusively for religious purposes looks set to remain. However the proposed rules may soon change on mixed use properties.
Only the religious portion of such properties will be tax exempt and in the case of a dispute it may be the state that has the final say.
The Roman Catholic Church could soon be contributing an extra €1 billion Euro (NZ$1.6b) each year in tax on its estimated 110,000 Italian properties. These properties include hotels and shopping centres with a collective value of around € 12 billion Euro (NZ$19.5b).
Initially the church fought back arguing that the Prime Minister needed to consider the social benefit of its many activities. Church leaders have since changed their stance and are now willing to negotiate.
New Zealand abolished its land tax years ago. It generally exempts religious organisations from income tax on both business and non-business income.
Greg Harris is a specialist tax partner in the Hamilton office of Deloitte.
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