The Airbnb website on a smartphone arranged in the Brooklyn Borough of New York, U.S., on Thursday, May 4, 2023. Airbnb Inc. is scheduled to release earnings figures on May 9. Photographer: Gabby Jones/Bloomberg 
Short-term rentals, often listed on online platforms such as Airbnb ABNB.O, are common in tourist hotspots such as Italy, but are politically sensitive amid Europe-wide protests over overtourism and soaring rents.
The proposed tax change was intended to encourage landlords to rent to long-term residents rather than tourists, but faced opposition from coalition partners the League and Forza Italia, allies of conservative Prime Minister Giorgia Meloni.
The measure was cancelled after Meloni held high-level talks on the budget law on Wednesday with Economy Minister Giancarlo Giorgetti and leaders of ruling coalition parties.
Landlords will continue to benefit from a reduced tax rate of 21% on income from one short-term rental property, instead of the standard 26%.
However, ruling parties agreed to lower the threshold at which short-term rental activity must be registered as a business, which carries heavier taxation.
Currently, landlords managing more than four properties fall under this regime; the threshold may be lowered to more than two, lawmakers said.
The 2026-2028 budget, presented in October, is now under parliamentary review and is expected to be approved around the end of December.
Proposed legislation typically undergoes changes during this process.
(Reporting by Giuseppe Fonte and Alvise ArmelliniEditing by Ros Russell)