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Report: Italy considers tightening tax rules for bank loan losses

Italy's government is eyeing tighter fiscal rules for banking sector loan losses in a bid to avoid a sales tax hike to finance its expansionary 2020 budget, Reuters reported, citing two sources close to the matter.

The country is considering lowering the amount of loan losses eligible for deduction from banks' taxable incomes next year as bad loans continue to weigh on Italian lenders' balance sheets, the report said.

The new ruling coalition of the 5-Star Movement and Democratic Party is due to approve a draft 2020 budget on Oct. 15, which is the deadline for sending the document to the European Commission for endorsement.

The Italian government expects a budget deficit of 2.2% of GDP in 2020, which will mostly go toward offsetting an increase in value added sales taxes, expected to kick in from January 2020, to raise €23 billion and ensure that Italy stays within the EU's fiscal limits, unless it finds other sources of funding.