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ROME (Reuters) - The two-man workshop close to the Vatican had been busy when tax police raided it last week, seizing about a million religious articles and souvenirs ranging from rosaries to images of Pope John Paul II.
"It was a pretty substantial operation," said Lieutenant Colonel Davide Cardia of the Guardia di Finanza in Rome. "Let's say an average of 10-12 euros an item, multiplied by a million. It gives you some idea of the sums involved."
The raid on the illegal workshop serving the cluster of tourist shops and street vendors around the Vatican was only one of a series across Italy in recent weeks, the highest profile of which was a swoop in the chic Alpine ski resort of Cortina.
As well as the Cortina operation, which caught numerous Ferrari owners apparently earning less than 30,000 euros ($34,000) a year, police have descended on nightclubs and bars in Milan and shops in Rome where fewer than half were issuing proper receipts.
The high profile operations have drawn accusations from parties including the centre-right PDL of former Prime Minister Silvio Berlusconi and the regional Northern League that tax officials were showing off and targeting hardworking businesses.
"There's been a big reaction to these operations but to be honest, we and the Guardia di Finanza have always conducted them," said Marco di Capua, deputy director of the Agenzia delle Entrate, Italy's main tax collection agency.
All Italian governments routinely pledge to fight tax evasion, often budgeting for billions of euros in hoped-for revenues well before they materialize, but it has proved impossible to stamp out.
And as Prime Minister Mario Monti struggles to repair Italy's strained public finances, the perennial fight against tax evasion, a phenomenon estimated to be worth some 120 billion euros a year, has taken greater prominence.
Last year, authorities recovered around 11.5 billion euros, up from 3.7 billion a decade ago, in part thanks to better information gathering and more targeted surveillance.
However that still represents only a fraction of what is lost overall in a phenomenon which has been deeply entrenched in Italy ever since the country was unified in 1861.
Italians have long been used to doctors and dentists offering discounts for bills settled in cash, shops and businesses that do not give receipts and street sellers offering counterfeit goods at knock-down prices.
The hope is that the pressure of the crisis on public accounts will change attitudes, even though authorities acknowledge that the scale of the problem remains daunting.
"It is a question of culture and mentality," Di Capua told Reuters in an interview. "But it's at critical times like this that there is more awareness of the problem."
The scale of the challenge was underlined on Friday by the discovery of a 100 million euro tax fraud on more than 20 million liters of oil products in Naples, conducted through a series of Italian- and foreign-fronted companies.
As well as more sophisticated fraud of this kind, a vast "submerged economy" operates out of sight of the authorities. It is estimated by national statistics agency ISTAT to be worth between 255 and 275 billion euros, or 16.3-17.5 percent of gross domestic product.
A high overall tax burden - driven up by the need to compensate for revenue lost in unpaid tax - as well as widespread mistrust of government inefficiency have also fostered widespread acceptance of tax evasion.
Italy ranked 134 out of 183 countries - behind Uzbekistan - for the amount a mid-sized company must pay in tax and the administrative burden imposed in preparing tax returns, according to the World Bank's most recent Doing Business survey.
Mindful of disappointment from previous governments' promises, Monti has avoided including revenues from tax evasion in his budget plans but officials say there has been progress in both enforcement and in popular awareness.
Tax authorities say more sophisticated tools to match spending patterns to declared income as well as automated checks have also made it easier to isolate some kinds of tax evaders, and point to increasing amounts they have managed to claw back.
"In Cortina for example, we identified companies that had apparently been making losses for years," Di Capua said.
"If someone's buying an SUV or a yacht or sending their children to private schools and declaring revenue of 5,000 euros a year, then you're going to be asking how that's possible."
Beyond the raids, much work is being done behind the scenes, simplifying cumbersome tax processes to reduce what Di Capua called "tax evasion through frustration."
More effort is going into helping companies comply with tax laws and heading off evasion before it occurs, as well as improving the image of the tax authorities with often skeptical public opinion.
Despite the complaints from some politicians, opinion polls have shown strong support for the latest operations, although as Di Capua noted: "Everyone's against tax evasion when it's someone else doing it."
But after 30 years with the tax authorities, he said he has seen attitudes change as the realization has spread that unpaid tax translates into higher costs for those who do pay, and lower spending on services such as schools and hospitals.
"Previously the attitude was the only people who paid were those who couldn't get out of it," he said. "That at least has started to change."
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