Crisis-hit Italy on Friday adopted a draft bill to scrap a controversial tax exemption for Catholic Church property in a move that could raise an extra 600 million euros ($808 million) a year.
The law now allows businesses operating out of Church property such as hotels and restaurants not to pay property tax as long as the building also has some religious function, such as a chapel or an adjoining monastery.
The government promised this month to remove the exemption following an outcry among many Italians who are already hard pressed by an austerity drive that has raised taxes and slashed budgets to avoid bankruptcy.
Prime Minister "Mario Monti informed the cabinet that he has presented an amendment to the Senate... on the immediate abrogation of rules on exemption for properties where commercial activity is not exclusive," the cabinet said.
Property that is exclusively for non-commercial use such as churches will continue to be exempt from tax.
The European Commission had opened an investigation into the loophole in 2010 on suspicion of anti-competitive behaviour.
The Italian Catholic Church -- considered separate from the Vatican state, which has sovereignty -- owns around 100,000 properties worth 9.0 billion euros including churches, schools, universities and hospitals.
It also owns properties mainly aimed at tourists such as the French restaurant "Eau Vive" and the four-star hotel "Ponte Sisto" in Rome.
The National Association of Italian Communes has said the extra revenue for state coffers could be around 600 million euros a year.