On 2 December 2021, the Commission published its annual VAT Gap report which measures the overall difference between the expected VAT revenue and the amount actually collected in EU Member States.
This year’s study shows that Member States lost an estimated €134 billion in Value-Added Tax (VAT) in 2019. This figure represents revenues lost to VAT fraud and evasion, VAT avoidance and optimisation practices, bankruptcies and financial insolvencies, as well as miscalculations and administrative errors. While some revenue losses are impossible to avoid, decisive action and targeted policy responses could make a real difference, particularly when it comes to non-compliance.
Lost VAT revenues have an extremely negative impact on government spending in public goods and services upon which we all depend, such as schools, hospitals and transport. The missing VAT could also prove beneficial as Member States strive to cover debt incurred during the initial recovery from the COVID-19 pandemic, or raise their climate financing ambitions. In fact, the EU’s Recovery and Resilience Facility could be financed in its entirety by only 5.5 years of currently-uncollected VAT revenues.
Main results in 2019
In nominal terms, the overall EU VAT Gap decreased by almost €6.6 billion to €134 billion in 2019, a marked improvement on the previous year’s decrease of €4.6 billion. Though the overall VAT Gap has been improving between 2015 and 2019, the full extent of the COVID-19 pandemic on consumer demand and therefore VAT revenues in 2020 remains unknown.
In 2019, Romania recorded the highest national VAT compliance gap with 34.9% of VAT revenues going missing in 2019, followed by Greece (25.8%) and Malta (23.5%). The smallest gaps were observed in Croatia (1.0%), Sweden (1.4%), and Cyprus (2.7%). In absolute terms, the highest VAT compliance gaps were recorded in Italy (€30.1 billion) and Germany (€23.4 billion).
The VAT Gap is relevant for both the EU and Member States since VAT makes an important contribution to both the EU and national budgets. The study applies a consumption-side “top-down” methodology using national accounts data to produce estimations of the VAT compliance gaps. The VAT Gap is calculated as the difference between VAT due and actual VAT revenues and as such represents VAT revenues lost compared to a theoretical VAT calculation.
Download Vat Gap Report 2021 here