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Italy declares war on tax dodgers in bid to fix finances, cut taxes

Angelo Amante and Giuseppe Fonte

* Tax evasion costs Italy 110 bln euros per year

* PM calls it "one of our greatest plagues"

* Govt wants to discourage cash transactions

* Plans tougher penalties, incentives to request receipts

ROME, Sept 26 (Reuters) - Italy's government has announced a new crackdown on tax evasion as part of its 2020 budget, but it will have a hard time breaking a bad habit that costs the state more than 100 billion euros ($109.34 billion) a year.

From rich self-employed in the north to farm laborers forced to work in the black economy in the poor south, Italians have become so accustomed to avoiding the taxman that attempts to tighten the system are always met with stiff resistance.

According to the Treasury's latest estimates, tax dodgers cost the country 109 billion euros on average each year between 2013 and 2015. Italy has the highest level of Value Added Tax evasion in the EU, the European Commission says.

The new government of the anti-establishment 5-Star Movement and the center-left Democratic Party (PD), scrambling for resources in its 2020 budget, says that has to change.

"Tax evasion is one of our country's greatest plagues. The government is working on measures that have never been adopted before," Prime Minister Giuseppe Conte said on Tuesday.

"I am asking for a pact with all honest Italians: accept this challenge and finally you will all pay less (tax)."

Measures under consideration include incentives to encourage people to use credit cards, where payments are more easy to track and tax, and tougher penalties and higher jail terms for those who seek to defraud the taxman.

5-Star is pushing to reduce the threshold at which tax evasion is considered a criminal offense to 50,000 euros from the current level of 150,000 euros.

The government not only needs to keep a lid on the budget deficit next year, but it also wants to reduce taxes for those who actually pay them.

The previous coalition between the 5-Star and the far-right League which collapsed last month, took a softer line on tax evasion, promoting instead amnesties for offenders, allowing them to settle disputed claims by paying reduced sums.

It also clinched some important out-of-court settlements with multinationals accused of evasion, the largest being a 1.3 billion euro deal with Kering, the holding company of fashion house Gucci.

HIGH TAX RATES

The challenge for Conte, a technocrat close to 5-Star, is to convince Italians that enforcing tax compliance can lead to a reduction in the nation's notoriously high tax levels.

According to latest data, the ratio between Italy's tax take and gross domestic product (GDP) stood at 42.4% in 2017 against an average of 34.2% in the wealthy-nation group, the OECD.

"Any money recovered should be used to reduce tax rates, otherwise fiscal pressure will increase and so will public spending," said Luca Ricolfi, a political commentator and professor of data analysis at Turin University.

Among the steps being considered in the budget is an expansion of a new electronic invoicing system which forces firms and service providers to pass invoices, in real time, to the financial authorities to check they are bonafide.

Small businesses and self-employed workers who earn up to 65,000 euros per year, who are currently exempted from electronic invoicing, may have to adopt the system from the start of next year, a government source said.

To discourage informal and untaxed cash transactions the government plans to introduce incentives for the use of credit cards, abolishing or reducing commission retailers pay to banks for transactions of up to 30 euros, a Treasury source said.

Another policy under review to encourage people to ask for tax receipts on purchases is to hold lotteries in which holders of the winning receipts, identified with a number, get a cash prize. These "receipt lotteries" have already been adopted in several countries including Portugal, Slovakia and Malta.

However, some political analysts are say fear of angering voters and playing into the hands of the populist League could hinder any real attempt to curb tax fraud.

"If they really fought tax evasion, they would lose votes," said Turin University's Ricolfi. ($1 = 0.9146 euros) (Reporting by Angelo Amante and Giuseppe Fonte; writing by Angelo Amante, editing by Gavin Jones, William Maclean)