The VAT gap, which is the difference between expected VAT revenues and VAT actually collected, provides an estimate of revenue loss due to tax fraud, tax evasion and tax avoidance, but also due to bankruptcies, financial insolvencies or miscalculations.
EU countries lost EUR137 billion in value-added tax revenues in 2017.
While the VAT gap has reduced somewhat compared to previous years, it still remains very high, highlighting the need for comprehensive reform of the EU VAT rules, as proposed in 2017 by the European Commission, and increased cooperation between member states to clamp down on VAT fraud and to make the rules work for legitimate businesses and traders.
The smallest VAT gaps were in Sweden, Luxembourg and Cyprus where only 1% of VAT revenues on average fell by the wayside. In absolute terms, the highest VAT Gap of around EUR33.5 billion was in Italy.
The VAT gap decreased in 25 member states and increased in three. Malta (-7 percentage points), Poland (-6 percentage points) and Cyprus (-4 percentage points) showed strong performances, with large decrease in their VAT losses.
Seven member states, namely Slovenia, Italy, Luxembourg, Slovakia, Portugal, Czech Republic and France also revealed robust results, reducing their VAT gap by more than 2 percentage points. The VAT gap grew noticeably in Greece (2.6%) and Latvia (1.9%) and marginally in Germany (0.2%).
In nominal terms, the VAT gap decreased by EUR8 billion to EUR137.5 billion in 2017, a similar amount as the 2016 decrease of EUR7.8 billion. The VAT gap in 2017 represents 11.2% of total VAT revenues in the EU, compared to 12.2% the year before. This downward trend can now be observed for the fifth consecutive year.
The VAT gap report published Thursday concentrates on 2017, as this is the most recent period for which comprehensive national accounts data and own resources data are available, the Commission said.
This year’s study introduces a forecasting exercise which provides so-called “fast estimates” for the year preceding the publication year, namely 2018. These fast estimates indicate that the VAT gap will likely continue its downward trend and fall below EUR130 billion and 10% of the VAT Total Tax Liability (VTTL) in 2018.