The Treasury estimates some 109 billion euros of tax is evaded annually, equal to about 21% of the revenue actually collected. The government believes the problem can be tackled by boosting digital payments which, unlike cash, leave a trace.
Prime Minister Giuseppe Conte is offering refunds on some money spent electronically, tax breaks for outlets with card machines and a new 50-million euro ($58.93 million) state lottery for card users only.
The coronavirus, which forced the government to lock down the economy between March and May, is helping his efforts.
"We have seen a surge in digital payments since the lockdown, I think mainly because of people not wanting to touch notes and coins," says Cinzia Di Siena, who has run a pharmacy in southern Rome for the last 13 years.
A study published last week by credit association Assofin, market research firm Nomisma and pollster Ipsos said the lockdown was a "major occasion for Italians to try out non-cash payments," with almost eight out of 10 making purchases online.
It reported that 31% of Italians increased their use of e-commerce during the lockdown, versus 23% of respondents in the United States, 18% in Germany and 16% in Britain.
Despite the recent trend, Italy is nowhere near the level of cashless purchases seen in much of northern Europe. European Central Bank data shows card payments in Italy last year accounted for 12.3% of GDP, versus a euro zone average of 16.6%.
CASH PRICE OR CARD PRICE?
Many Italian market stalls and taxi drivers will still not accept cards, and it is commonplace for private doctors and other professionals to offer clients one fee for payment in cash and another, much higher one, for payment by card.
In his drive for a more cashless economy, Conte has promised that from Dec. 1 the state will refund Italians 10% of all their credit or debit card spending up to a ceiling of 3,000 euros.
In addition, the 100,000 people who make the largest number of plastic payments, of any amount, in a six-month period, will get a "super cashback" payment of 3,000 euros.
Card payment receipts will be the tickets in the new state lottery next year, while from 2021 Italians will only be able to deduct medical expenses from their annual tax returns if they attach an electronic payment receipt.
Sabrina Patrizi who has run a fishmongers for 20 years at the bustling Alberone street market in southern Rome, said the incentives are already changing shoppers' habits even before they come into force.
"This market has always been cash only, but recently the number of people wanting to pay with plastic has trebled," she said, adding that she had just bought a digital payment machine.
Obstacles often cited by cash-loving Italian bar owners and shopkeepers are the commission charges on transactions and the fees for installing and operating card payment machines.
These costs are not fixed but are negotiated between banks and individual clients. They have come down in recent years but some retailers say they can eat into profit margins by up to 4%.
CASH FOR COFFEE
"Banks should scrap commission for payments below a certain threshold," said Benedetta Pizzolato in the cake shop she runs in central Milan.
"Card payments have risen a lot since COVID, people don't like handling cash," she added, as she repeatedly disinfected both her hands and the card machine on the counter.
Annamaria Paredes, who has managed a Rome cafe for the last 10 years, said she cancelled one bank account because of the commission of 1.3 euros on each card transaction after the first 1,000 euros received every month.
"Sometimes someone would try to pay for a coffee with a card, and I would just say: 'don't worry, I'll offer you it for free'," she said.
Italy may never near the level of card use seen in countries like Britain, where the banks' trade body UK Finance says cash was used for just 23% of payments last year, or Sweden, where many outlets do not accept notes and coins.
Yet even those Italians who have dealt only in cash for a lifetime are grudgingly making the change.
"I am talking to my bank about installing a card machine because more people want to pay with plastic," said 80-year-old Antonio Iuliano, owner of Tony's Snack Bar in Rome for 44 years.
"The problem is the commission, so I plan to not accept card payments for less than seven euros."
(additional reporting by Giuseppe Fonte in Rome, David Milliken in London and Simon Johnson in Stockholm, writing by Gavin Jones; Editing by Mike Collett-White)
By Elisa Anzolin and Gavin Jones