This year’s report of the “Study and Reports on the VAT Gap in the EU-28 Member States” revealed that in 2018 there was a loss of €140 billion in Value-Added Tax (VAT) revenues across EU countries.
The VAT Gap is the difference between the expected VAT revenue and the amount collected. So, in 2018 the overall EU VAT Gap represented a loss of 11% in revenues, which is a positive trend as it dropped from 11.5% in 2017, in relative terms.
Looking at the variation in VAT Gaps between the Member States, these reflect their differences in terms of tax compliance, fraud, insolvency, bankruptcy, and tax administration. Therefore, it can be an indicator of the performance of national tax authorities but other circumstances, such as economic trends and the quality of national statistics, can also have an impact. So, quantifying the VAT Gap across the Member States can help to establish well-targeted measures and track their effectiveness.
As the following graph illustrates, in 2018 VAT Gaps ranged from 0.7% to 33.8%.
The smallest gaps were registered in Sweden (0.7%), Croatia (3.5%), and Finland (3.6%), whereas the largest was in Romania (33.8%), followed by Greece (30.1%), and Lithuania (25.9%). In nominal terms, Italy (€35.4 billion), the United Kingdom (€23.5 billion), and Germany (€22.1 billion) were the countries where more VAT revenues went missing.
Overall, from 2017 to 2018 the VAT Gap decreased in the majority of the Member States, with only 7 experiencing an increase.
Although still very high, the VAT Gap has improved significantly in recent years and this downward trend was expected to continue. However, as the coronavirus pandemic is impacting the global economy, the European Commission forecasts a potential increase in VAT revenue losses to €164 billion in 2020.