Tax evasion is rearing its head. The underground economy accounts for 9.1% of GDP.

The underground economy is recovering to pre-pandemic levels, and tax evasion is rearing its head, returning above the psychological threshold of €100 billion. Illegally employed workers are growing, the underground economy is concentrated primarily in Southern Italy, and while the number of RAI license fee evaders is decreasing, the undeclared rent sector is increasing. This is the snapshot contained in the latest Report on the unobserved economy and tax and social security evasion from the Ministry of Economy and Finance .

In 2022, the last year for which relevant information is available, the overall gap (tax and social security contributions) ranged between €98.1 billion and €102.5 billion (based on two different assumptions used in the estimate for dependent labor), an increase of approximately €3.5 billion compared to 2021. After a decline in 2000, tax evasion thus returned to €100 billion. However, compared to 2018 levels, the gap remains approximately €5-5.9 billion lower. Social security contributions evasion stands at €8.4-11.6 billion, while lost tax revenues stand at €89.7-90.9 billion.

Tax evasion from businesses and self-employed workers, as well as regional production tax (IRAP), VAT, and corporate income tax (IRES), is on the rise. Rent evasion is also on the rise, rising to €875 million after a "significant decline" in 2020-21 due to the pandemic (from €625 million in 2021). In contrast, RAI license fee evaders dropped to 1.56 million, down from 1.7 million in 2021. With the introduction of the "license fee on the bill" in 2016, the report highlights that "the number of RAI license fee evaders has been drastically reduced," dropping from over 7 million in 2011-2015 to approximately 1.7 million in 2016.

Overall, the added value generated by the underground economy stood at €182.6 billion, close to those observed in the run-up to the pandemic crisis and up 10.4% compared to 2021 (€165.5 billion).

The impact on GDP "remained essentially stable," rising to 9.1% from 9% in 2021. The share of under-declarations of the underground economy increased, rising to 55.6%, while the share of irregular work decreased (dropping to 38% from 42% in 2019). Other components (tips, undeclared rents, and supply-demand integration) remained more limited, at 6.4%. The share of the unobserved economy was "very high" in Southern Italy (16.5% of total value added), followed by Central Italy, where it accounted for 11.7%. Significantly lower, and lower than the national average, were the shares reached in the Northeast and Northwest (9.4% and 8.9%). At the regional level, the share of the underground economy in value added fluctuates between 19.1% in Calabria and 7.7% in the Autonomous Province of Bolzano. However, considering each region's contribution to the national total, Campania is the region with the highest levels of the underground economy. The report also highlights "the role of Lazio, which, despite its propensity in line with the average, shows a significantly high impact on the national underground economy, and that of Lombardy, which, with a propensity much lower than the average, also has a very high impact on the underground economy."

The use of informal work by businesses and families, which "is a structural feature," the document states, "of the Italian labor market," continues to grow, albeit slightly: full-time, irregular workers total 2.9 million (up 0.1% from 2021), with a predominance of employees. The incidence remains most significant in services and reaches particularly high levels in "Other personal services" (from babysitters to beauticians and parking attendants). However, it is also "very significant" in agriculture, commerce, transportation, restaurants, and construction.