The estimated EUR177 billion in VAT revenues lost due to non-compliance or non-collection equates to 16% of total expected VAT revenue of 26 member states (data were not available for Cyprus and Croatia).
The VAT Gap is the difference between the expected VAT revenue and VAT actually collected by national authorities. While non-compliance is certainly an important contributor to this revenue shortfall, the VAT Gap is not only due to fraud. Unpaid VAT also results from bankruptcies and insolvencies, statistical errors, delayed payments and legal avoidance, among other things.
In 2012, the lowest VAT gaps were recorded in the Netherlands (5% of expected revenues), Finland (5%) and Luxembourg (6%).
The largest gaps were in Romania (44% of expected VAT revenues), Slovakia (39%) and Lithuania (36%).
Eleven Member States decreased their VAT gap between 2011 and 2012, while 15 saw theirs increase. Greece showed the greatest improvement between 2011 (EUR9.1 billion) and 2012 (EUR6.6 billion), although it remains one of the member states with a high VAT Gap (33%).
In Romania, the VAT gap decreased slightly in 2012, to EUR8.8 billion, from EUR8.9 billion in 2011, but remained unchanged percentage-wise, at 44% of expected VAT revenues.
“The VAT Gap is essentially a marker of how effective – or not – VAT enforcement and compliance measures are across the EU. Today’s figures show there is a lot more work to be done. Member States cannot afford revenue losses of this scale. They must up their game and take decisive steps to recapture this public money. The Commission, for its part, remains focused on a fundamental reform of the VAT system, to make it more robust, more effective and less prone to fraud,” said EU Commissioner for Taxation, Algirdas Šemeta.
Member states need to reform their national tax systems in a way that facilitates compliance, deters evasion and avoidance, and improves the efficiency of tax collection, the Commission said.