The process of tax reform is currently in its initial phase. The details regarding the execution of the first segment of this reform have been shared and the operational instructions for the implementation of the first part of this tax reform have been released. This will be applicable starting from the year 2024. As per the proposed changes, the rates will be reduced from 4 to 3: the first will be 23 percent for those with an income up to 28 thousand euros; then 35 percent for those earning more than 28 thousand but less than 50 thousand and lastly, 43% for those earning more than the last mentioned limit. The prior rate of 25% that was applicable for the income bracket of 15 thousand to 28 thousand euros will no longer exist. Through a circular, the Revenue Agency has provided the financial administration offices with the necessary guidance to correctly implement the rules mentioned in the Legislative Decree 216 dated 30th December 2023. Additional amendments planned for 2024 include increasing the employee deduction by 75 euros, reducing the deduction amount for some charges for those earning more than 50 thousand euros and the cancellation of the relief for company capitalization (Ace).
As per the explanation provided by the Agency, the income brackets and their corresponding rates will be reduced from four to three (23 percent for those earning up to 28,000 euros; 35 percent for those earning more than 28,000 euros but less than 50,000 euros; 43 percent for those earning more than 50,000 euros). Alongside this, the deduction for employees and for certain similar income sources will also increase by 75 euros, changing from 1,880 to 1,955 euros, given that the total income does not exceed 15,000 euros. Hence, for the year 2024, the non-taxable limit will increase to 8,500 euros for employees.
Municipalities, Regions, and autonomous Provinces have been given a deadline of 15th April 2024 to adapt the regulation of regional and municipal surcharges according to the new Irpef brackets and rates. For taxpayers having a total income above 50,000 euros, the deduction amount from the gross tax in relation to expenses where the deductibility percentage is set at 19 percent will be reduced by an amount of 260 euros.
The reduction will also impact the donations made to political parties. However, healthcare costs and insurance premiums for natural disaster risks are excluded from this. For those with a total income exceeding 120,000 euros, the deduction of 260 euros will be applied to the gross tax which is already reduced due to the gradual decrease of the 19% deductions introduced by the budget for 2020 and regulated by article 15 , paragraph 3-bis, of the TUIR. The legislative decree concerning the first form of IRPEF reform also planned for the repeal of the facilitation for the capitalization of companies (ACE), starting from the tax period following the one in progress on 31st December 2023. This was an assistance aimed at promoting the economic growth of companies by balancing the tax treatment between debt-financed and equity-financed companies. Regarding this, the Circular specifies that the decree calls for the cancellation of the ACE until its effects are entirely exhausted. Hence, previous deductions that were not used due to the lack of taxable income are to be considered as preserved and can still be utilized in subsequent tax returns.
