UPDATE 1--Italian government will delay sales tax hike to meet coalition demands -draft decree
ROME, Sept 27
ROME, Sept 27 (Reuters) - Italy's government will delay an increase in sales tax, heeding coalition demands, but will raise tax on petrol and increase advance corporate tax payments, according to the draft of a decree to be discussed by the cabinet on Friday.
Silvio Berlusconi's People of Freedom party (PDL), a key partner in Enrico Letta's fragile left-right coalition, has threatened to bring down the government unless it abandons the sales tax hike, due to take effect in October.
The increase, which had already been postponed from July to October, will now be delayed until the start of January, according to the draft decree obtained by Reuters.
The cabinet is expected to discuss and approve the decree at a meeting slated to begin at 1730 GMT.
However, amid political turmoil concerning the future of Enrico Letta's government, no formal agenda for the cabinet meeting has yet been released.
To find the roughly 1 billion euros required to avoid the hike in the main sales tax rate to 22 percent from 21 percent, the government will increase petrol prices, already among the most expensive in the European Union.
Excise duties on fuel will rise by two euro cents per litre to the end of this year and then increase by a further 2.5 cents from the start of 2014.
At the same time advance payments of the business taxes Ires and Irap due in December will rise to 103 percent of the expected full-year tax bill, from 101 percent at present.
This will increase tax revenues at the end of this year but will result in lower revenues in 2014 because the higher advance tax payments will be compensated by lower payments at the next instalment due in mid-2014.
The centre-right People of Freedom party, however, showed no sign of being appeased as details of the draft decree leaked.
PDL lawmaker Daniele Capezzone, the head of the lower house finance committee, said it was "simply unacceptable" that the government should try to fund a suspension of one tax hike by raising and bringing forward other taxes.
He said the proposal indicated that it was time to put an end to Enrico Letta's left-right coalition government, which was formed following an inconclusive February election. (Reporting by Giuseppe Fonte, writing by Gavin Jones; Editing by Susan Fenton)