The cash limit for making purchases in physical shops in Italy is being raised from 2,000 euros to the new threshold of 5,000 euros, with new restrictions on the use of banknotes. In light of European practices and the alleged non-existence of a link between the cash cap and tax evasion, the Meloni government agrees to raise the limit. We delve into the history of the cash limit in Italy, analyse the behaviour of other European countries and review the details of the new bill.
Italy cash payment limit: what does it mean?
When we speak of a cash cap, cash limit or cash ceiling in Italy, we are referring to a measure to limit the use of banknotes for the purchase of goods and services. Through the Budget Law, the government can decide what will be the threshold not to be exceeded for the purchase of goods with cash. This is a measure that has affected Italy since the lira era.
The size of the cash cap in Italy outlined by the government has been changed many times over the years. Starting in 1991, the maximum threshold of usable banknotes was gradually lowered, rising again in 2016 (3,000 euros) and falling again in 2020 to 2,000 euros, now raised again to 5,000 euros.
With the new government, the 2022 cash limit in Italy is again the subject of clashes between the majority and the opposition. It was the new proposal of Matteo Salvini's party, which proposed raising the cash ceiling to 10,000 euros, then limiting it to half.
The link between cash cap and tax evasion in Italy
On the correlation between limits on the use of cash and the phenomenon of tax evasion, several parties have spoken out. In a paper by the Csef (Centre for Studies in Economics and Finance) of the University of Naples Federico II, it is stated that the 2011 cash cap of 1,000 euros was an effective measure to increase tax revenues.
According to a study by the Financial Intelligence Unit at the Bank of Italy (UIF), the correlation between the cash cap and tax evasion is certain. The UIF research identified the existence of a causal link between cash movements and the underground economy. As the 2016 cash limit increased from 1,000 euros to 3,000 euros, there was also a growth in the underground economy. The 1 per cent increase in cash circulation would correspond to an increase in the black economy of between 0.8 per cent and 18 per cent.
However, when talking about the identification of the cash ceiling, it must be emphasised that this is not the only factor affecting the amount of money not paid to the tax authorities. However, it can be argued that the imposition of a threshold is a rather useful measure to counter tax evasion.
An overview of cash limits in Europe
According to a scale from the lowest to the highest cash limits in shops, the thresholds set by European countries can be summarised as follows:
- Greece: 500 euros;
- France and Portugal: 1,000 euros;
- Romania: 2,100 euros;
- Spain: 2,500 euros;
- Belgium: 3,000 euros;
- Lithuania: 3,000 euros;
- Slovenia and Slovakia: 5,000 euros;
- Bulgaria: 5,100 euros;
- Latvia: 7,200 euros;
- Malta: 10,000 euros;
- Czech Republic: 14,000 euros;
- Croatia and Poland: 15,000 euros.
Although the cash cap measure helps to keep tax evaders (at least partly) at bay, there are as many as 10 EU countries that have not seen fit to set a maximum threshold for cash payments. For example, in Germany a cash limit does not exist. However, there is an obligation to show proof of identity if a citizen makes a payment exceeding 10,000 euros in cash. Countries with no limits on cash payments also include Austria, Hungary, Finland, Estonia, Luxembourg, Cyprus and Ireland.
Latest news on the cash limit in Italy
Since measures on cash payments are not being implemented by some European countries where evasion is low, the new proposal in Italy is to raise the threshold on the use of cash to 5,000 euros. Setting a low cash cap will discourage tax evasion, a phenomenon that is now rampant in the country. So why increase the cash limit to 5,000 euros?
Current Prime Minister Giorgia Meloni supports the ECB's thinking that the measure should also include the poorer sections of the population, who may not have a current account and thus be unable to pay by digital means
What is the cash limit in Italy in 2022?
In 2022, the previous cash limit was 2,000 euros. However, the cash limit for the purchase of goods and services will increase to 5,000 euros before the end of the year, albeit with limitations on the use of banknotes.
How much cash can you keep at home in Italy?
There are no limits to the possession of cash at home or away from home. Having a large sum of money with you cannot constitute a criminal or administrative offence and, therefore, you cannot be sanctioned for possession of cash, regardless of the amount.
Other rules on the use of money in Italy
Constraints on the traceability of payments will remain, such as the 15,000 euro limit for foreigners, the 1,000 euro threshold for money transfer remittances and the 1,000 euro threshold above which bank and postal cheques must be marked 'non-transferable'. Some payments, such as salaries or payments for condominium services, will, as always, not be able to be made in cash for any amount.