Question

My country, Italy, charges a departure tax at its international airports when people are leaving the country. But the tax is only collected from its own citizens. Foreigners do not pay anything (or, the tax is equal to zero for them). Accordingly, I had paid 30 Euros (was equivalent to around $75 then) when I first left my country 20 something years ago. Over the years, the government has altered the rules and also updated the amount ($ equivalent amount is roughly the same). But now, those Italian citizens living abroad are also exempt. So I no longer pay the tax when I visit Italy. The tax is only on Italian citizens who live in Italy.

(a) Why was the Italian government not charging foreigners? Why is it not charging Italian citizens living abroad?

(b) Why not charging resident foreigners higher, $500, for example?

(c) Do you think this tax is regressive or progressive?

Answer 1

1. As per the Tax Laws, the VAT spent by foreigners on local purchases in Italy would be repaid to them back, the logic being that the country is earning foreign exchange whenever a foreigner spends foreign currency in Italy.

Similarly Italian Citizens living abroad also bring foreign exchange to Italy thereby increasing the Country's Foreign exchange reserves. Hence they are entitled for exemption.

2. No country can have a price discrimination policy for the same item one for the overseas foreigners and one for resident foreigners. The Resident foreigners in Italy are also paying Income Tax to the Italian Government; hence they cannot be sold at differential prices.

3. In my opinion, this tax is neither regressive nor progressive since the Government does not lose on taxation or on income.