assessed not at five-eighths, but at only eighteen-fortieths. In Schedule D, incomes were assessed not at four-eighths, as before, but at fifteen-fortieths. This would practically mean the same rate of tax as before. Finally, in order that the government securities might not appear to be singled out for higher taxation, Schedule A was divided into two parts: A-1 was now made to include not only government securities, but also those of corporations guaranteed or aided by the government, and state lottery premiums. All the incomes in this subclass were to be assessed at their full amount. On the other hand, a new sub-class A-2 was introduced, consisting of other incomes derived from capital of any nature, and these were now assessed at only thirty-fortieths of their full income. The net result was that with a normal rate of 20 per cent the actual rates paid by the different schedules would be as follows: A-1 20 per cent; A-2 15 per cent; B 10 per cent; C9 per cent; D 7 per cent. The law of 1894 also further complicated the abatements, which, with the additional change introduced in 1907, will be explained below.

8.3. The Actual Conditions

Coming, then, to a consideration of the tax as it exists at present, it may be said that the income tax applies to all in comes save those from real estate. It includes, however, income from agricultural industry- that is, from the tilling of the land, but only in case these agricultural profits are made by individuals who do not own the soil. This distinction between agricultural profits made by owners and by non-owners is of course as illogical as it is unjustifiable. The tax also applies to certain revenues like tithes, etc., which are not liable to land tax. Moreover, the farmers who work the land on shares, on the metayer system, are subject to a tax of five per cent on the amount of land tax paid by the land-owner when it is over fifty lire. Otherwise they are exempt.

The tax is payable by Italians and foreigners alike, by individuals as well as by corporations, but only on incomes

received in Italy. Quite a discussion took place on this point when the tax was first imposed in 1864; but at that time the theory of taxation was still that of reciprocity, and since the government was not supposed to protect property outside of the country, it was decided not to tax incomes therefrom.1 The more modern view considers this position mistaken, not only because it puts citizens and foreigners on the same plane, but because there is no reason why a citizen who happens to invest his money abroad should be free of all obligation to the state.2

The tax is imposed on the head of the family, including the income of the wife and of the minor children. The legal exemptions include the actuarial reserve of life insurance companies, the income of mutual aid societies (with some slight exceptions), and the income of the royal family. Charitable institutions are not exempt. In addition to the legal exemptions, however, it has become the custom virtually to exempt all day laborers. According to Garelli, the law actually reaches only about 12,000 workmen.3 In 1897 the Minister of Finance, Branca, desired to enforce the law in the case of private laborers as it is already enforced with the public employees, and he suggested that only those with an income under three and a half lire should be exempted. But the law failed of adoption, and when the same principle was sought to be enforced by ministerial ordinance in 1899, the decree soon became a dead letter.4

The incomes subject to the law are declared to comprise not only the certain and fixed incomes (certi), but also the uncertain and variable incomes coming from business or individual exertion (incerti and variabili), and the tax is stated to be applicable on the basis of the assured or presumed

1 Bruni, op. cit., pp. 23, 24.

2 Cf. the discussion on these points in Chailley, op. cit., p. 223, and Spoelberch, op. cit., pp. 37-39.

8 A. Garelli, Le Imposte nello Stato Moderno. Milan, 1903, p. 158.

4 Cf. Magrini, Le Imposte di Richezza Mobile nei Rapporti con le Societa Commerciale obbligate alla Presentazione dei Bilanci. Milan, 1903, p. 189.

(presunti) incomes of the individual. The tax is paid in three different ways. The first method is what is called that of holding back, or retention (ritenuta). For instance, the tax on salaries of public officials, as well as on the interest of public securities, is withheld or retained by the government. A sub-class under this method is the system of so-called direct payments (versamenti). The income tax due from savings banks, the Red Cross fund, the Sardinian War securities, the fund from which the clergy are paid, etc., is also withheld or paid directly by the state. The second method is that of register or rolls (ruoli nominativi), that is, payments made directly by individuals who are put on the tax rolls. Finally, in the case of corporations, of employers, and of all debts in general, the tax is inscribed on the register not in the name of the person who receives the income, but in the name of the person who pays it out. Although the names appear on the register, it is the names of the persons who pay the income and not of those who receive the income. This method may therefore be put into a third class, and is sometimes called the method of ritenuta di rivalsa. Strictly speaking, this method, it will be seen, includes some of the characteristics. of each of the preceding methods. Taking the first and the third methods together, it will be seen that the principle of stoppage at source is applied at all events in part to the Italian tax.

The taxpayers are all required to make their declarations. After the amount of gross revenue has been determined, they are reduced to the amounts of assessable incomes as fixed by the law. The incomes are divided into what is practically five schedules. Schedule A-1 includes the income from capital and so-called perpetual revenues, which are derived from state or provincial securities or loans, including government mortgages, ground rents, and fixed annuities, as well as income from securities issued by corporations that are guaranteed or subsidized by the state, and the income from lottery prizes. In this schedule the incomes are assessed at their full amount, and the rate is therefore twenty per cent.

Schedule A-2 embraces all other income derived from capital, and all other perpetual revenues which are not included in Schedule A-1. Here the assessable income is fixed at thirty-fortieths of the real income; the rate, therefore, is really fifteen per cent. Schedule B includes the so-called temporary mixed revenues, that is, incomes derived from the coöperation of capital and labor. Practically it means the income derived from industry and trade. Here the assessable income is fixed at twenty-fortieths of the real income, - that is, the rate is ten per cent. Schedule C comprises the temporary incomes derived exclusively from individual exertion, such as wages or professional earnings. Here the assessable income is fixed at eighteen-fortieths of the real income, the rate consequently being nine per cent. Schedule D includes the incomes from pensions and salaries paid by government and the wages of public employees. Here the assessable income is fixed at fifteen-fortieths, that is, the rate is seven and onehalf per cent. All these rates are increased by two centesimi per cent to cover the expense of verification and collection.

The abatements are fixed differently in Schedule D from those in Schedules B and C, and are arranged according to the list mentioned above.1 But a complication is introduced by the fact that in the case of incomes subject to abatement, the reduction of the general income to the assessable income follows the old figures of the law of 1877, and not the new figures of the law of 1894. That is to say, the "net reduced" incomes are arrived at by reducing the incomes in schedules B, C, and D not to twenty-fortieths, eighteen-fortieths, and fifteen-fortieths of their actual amount respectively, but to six-eighths, five-eighths, and four-eighths respectively. consequence is that in Schedules B and C the old abatements of 250, 200, 150, and 100 lire, respectively, became new abatements of 166.66, 133.33, 100, and 66.66 lire. For instance, the recipient of an income of 600 lire in category B, who would, according to the calculation of 1894 be exempt as not having the minimum of subsistence of 400 lire, is actually 1 Supra, page 344.

The

taxable because according to the law of 1877 his assessable income would be 600 times six-eighths or 450 lire. When, however, the question arises as to what the abatements should be in such a case, there are still further complications. According to the new law he would be assessable, if there were no abatement, at 300 lire; but instead of deducting the old abatement of 250 lire from these 300 lire, there is now abated only the sum of 166.66 lire. He would therefore pay a tax of 20 per cent on 133.34 lire (300-166.66), that is, he would pay about 27 lire. The same would be true of other abatements.1

When we come to the administrative features of the tax, we are confronted by several interesting facts. The list of persons subject to the tax in each commune is supposed to be prepared annually by the municipal council (giunta municipale). If prepared with care this would, of course, be of very great value; but as a matter of fact, the lists are scarcely ever revised, and are of little use. The chambers of commerce in the different towns are legally required to notify the authorities of the formation of any new corporations or the opening of any new business, and the notaries, as well as the registers or managers, etc., are supposed to send to the tax office a list of all documents. Moreover, the court officials are prohibited, under severe penalties, from taking note of any document which is not shown to have paid the tax. As a matter of fact, however, this penalty has never been applied.2 Every taxpayer is also compelled to make a declaration of his income, under heavy penalty; but in practice the penalty is not enforced, and he therefore never does so. As a result, the officials (agenti delle imposte) have either to depend upon the indirect payment of the tax, that is, in those cases where the tax is stopped at the source, or they have to make their own assessment in all cases of the direct taxation of the individual. The tax agents, therefore, almost universally make the assessment of the income themselves. The assess1 Cf. for other calculations Spoelberch, op. cit., pp. 88-92. 2 Spoelberch, op. cit., p. 137.