By Giuseppe Fonte
ROME (Reuters) - Italy's government approved a bill on Thursday to cut income and corporate taxes, while also reducing penalties for tax dodgers who come clean and agree to pay the overdue sums.
The scheme is "aimed at simplifying and reducing the tax burden, encouraging investment and hiring," the Treasury said in a statement.
Under a draft seen by Reuters, the government intends to eliminate the risk of criminal convictions for those who settle with the authorities and catch up on missed payments, betting a cooperative approach will pay dividends.
Tax evasion is a chronic problem in Italy, costing state coffers some 90 billion euros ($95.5 billion) each year, according to the most recent Treasury data.
In its EU-funded post-COVID recovery plan, Italy promised the European Commission to cut the so-called "tax gap" -- the difference between potential tax take and the amount of taxes actually raised -- and thereby recoup around 7-8 billion euros in 2024 by comparison with 2019.
Looking to overhaul the fiscal system, the bill aims to reduce current income tax bands from four to three within two years, with the final aim of achieving a single tax rate at a later stage, the Treasury said.
The cabinet will consider setting the three bands at 23%, 33% and 43% in the short term, government officials have said, adding that a more expensive solution being studied would lower the second band to 27%.
The current income tax levy, named IRPEF, is based on rates running from a minimum of 23% on annual income up to 15,000 euros, to a top rate of 43% on income above 50,000 euros.
To avoid straining state coffers, the Treasury plans to partly fund the bill by reducing and simplifying the current 600 ways in which people and firms can deduct various types of spending from their tax bill.
These so-called "tax expenditures" deprive the state of 165 billion euros in revenues every year, a separate Treasury document showed.
In addition, the government wants to split the current 24% corporate income tax rate into two by introducing a second lower band at 15% to reward entrepreneurs who create jobs and invest in innovation to boost productivity.
($1 = 0.9421 euros)