Following the near collapse of the Italian government on Saturday 28 September, the planned 1% VAT rise to 22% will go ahead on 1 October 2013.
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There had been a draft agreement on Friday to postpone the VAT rise for a second time to 1 January 2014. However Prime Minister Letta suspended government talks whilst he sought a show of support. This prompted the resignation from the cabinet of the members of Silvio Berlusconi's party on Saturday. This now means the VAT rise cannot be stopped on Tuesday.
Italy now faces potential elections in the forthcoming weeks if a new cabinet cannot be agreed upon. This will create unwelcome uncertainty in the financial markets, which will trigger a further rise in Italy's borrowing costs.
The reduced VAT rates of 10% and 4% will not change.
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