€177 billion VAT Gap revealed by European Commission study

24 Oct 2014, keywords :

A VAT Gap study published this week sets out detailed data on the difference between the amount of VAT due and the amount actually collected in 26 Member States in 2012. The study reveals this gap to be 16% of expected revenues.

€177 billion VAT Gap revealed by European Commission study

The VAT Gap study is funded by the Commission in view of reforming the VAT system in Europe and to make more progress on the fight against tax fraud and tax evasion.

A seminar recently organised by CESI, with funding from the European Commission, brought together experts and practitioners in taxation to discuss the challenges facing this crucial part of government administration and in particular the role of tax authorities during the crisis.

Speaking at the seminar, Donato Raponi from the European Commission used VAT as an example. The most striking point made by Mr Raponi was regarding the VAT gap. Revenue which should be collected in the EU through VAT but which was quoted at about €200 billion, around 20% of total potential VAT revenue.

The study which reveals a shortfall of €177 billion in VAT collection focuses on revenues from 2012. Comments from the Commission at CESI’s seminar suggest the problem is not being resolved.

The problem varies throughout Member States, however all countries are showing VAT Gaps to be an issue. In 2012, the lowest VAT Gaps are found in the Netherlands (5%), Finland (5%) and Luxembourg (6%). The most significant Gaps are in Romania (44%), Slovakia (39%) and Lithuania (36%). Greece showed most improvement between 2011 (€9 billion) and 2012 (€6 billion), though still has a high VAT Gap (33%).

More political will and more resources were key words during CESI’s seminar on taxation. The study published this week underlines the need for Member States to take more concrete and more coordinated action on fight tax fraud and tax evasion.

Commenting on the new study, CESI Secretary General said, “The revenue VAT gap in Europe is significant and needs to be addressed. While Member States are imposing harsh cuts to public administrations to balance their budgets, they could be investing in areas such as tax administration in order to ensure effective tax collection. To think the ILO recently stated that €21 billion was needed to effectively implement the Youth Guarantee and fight youth unemployment, when we have €177 billion in uncollected or avoided VAT! Europe needs this revenue and it needs the political will to get it.”

To read the report in full, click on this link.

You can read more about the CESI seminar here or follow the debate on Twitter using #TaxinEU or by following @CESIpress