By Giuseppe Fonte

ROME (Reuters) -Italy will scrap part of its plans to facilitate cash payments for goods and services after criticism from European Union authorities and its own central bank, Economy Minister Giancarlo Giorgetti told lawmakers.

In its draft 2023 budget the government had proposed changing the current system in which sellers risk fines if they refuse to accept card payments, by saying no penalties would be imposed for transactions below 60 euros ($63.5).

The move drew criticism from the European Commission, which said it was not consistent with previous EU recommendations to Italy to boost tax compliance, and Giorgetti told parliament late on Sunday that the government had backtracked.

“We intend to eliminate the measure on points of sales,” he said in testimony on the budget, adding that some sort of compensatory measures may be introduced to help shopkeepers pay the commission fees on card transactions.

“I hope there will be further reflection at the European level,” he added.

Shares in Italy’s Nexi, Europe’s biggest payment processing firm, rose as much as 5% on Monday after Rome’s announcement.

The Bank of Italy this month warned the government that reducing regulatory curbs on the use of cash would fuel Italy’s black economy in a country where around 100 billion euros in taxes and social contributions are evaded every year.

The current fines for retailers, which amount to 30 euros plus 4% of the value of the transaction, were one of the conditions for a 21-billion-euro tranche of the EU’s post-COVID Recovery Fund money that Rome secured in the first half of this year.

Despite the latest developments, Prime Minister Giorgia Meloni, who took office in October, continues to be more indulgent towards the use of cash than her predecessors.

Her first budget, which must be approved by parliament before the end of the year, raises a limit on cash payments to 5,000 euros from next year, up from a previous ceiling of 1,000 euros.

TAX AMNESTIES

The budget bill also includes several tax amnesties allowing people to catch up with missed payments through reduced penalties.

In its national Recovery Plan, Italy promised the European Commission to cut the so-called “tax gap” — the difference between potential tax liability and the amount of taxes paid — to 15.7% by 2024 from 18.5% in 2019, something which implies recovering around 7-8 billion euros of evaded taxes.

Among a raft of amendments laid out by Giorgetti, the government has also renewed a measure that was in force in 2012 to give borrowers the right to convert mortgages worth up to 200,000 euros from floating to fixed rates.

Other changes strengthen fiscal incentives to encourage hiring on open ended contracts and further curb a “citizens’ wage” poverty relief scheme for the unemployed, introduced in 2019.

Next year, able-bodied people of working age will be able to draw the benefit for a maximum of only seven months instead of eight as envisaged in the initial draft budget, ahead of abolition of the scheme in its current form from the start of 2024.($1 = 0.9450 euros)

(Reporting by Giuseppe Fonte, editing by Gavin Jones and Keith Weir)

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