Member States in the European Union are losing billions of euros in value-added tax (VAT) revenues because of tax fraud and inadequate tax collection systems. 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.
Based on the VAT collection figures available, the total amount of VAT lost across the EU in 2017 is estimated at EUR 137.5 billion. This represents a loss of 11.2% of the total expected VAT revenue.
During 2017, collected VAT revenues increased at a faster rate of 4.1% than the 2.8% increase of VAT Total Tax Liability (VTTL). As a result, the overall VAT Gap in the EU Member States saw a decrease in absolute values of about EUR 8 billion, down to EUR137.5 billion. As a percentage, the overall VAT Gap decreased by one percentage point to 11.2%.
In 2017, Member States’ estimated VAT Gaps ranged from around 1 percent in Cyprus (0.6%), Luxembourg (0.7%), and Sweden (1.5%) to over 30 percent in Romania (35.5%) and Greece (33.6%). Half of EU-28 MS recorded a Gap above 10.1 percent.
Overall, the VAT Gap as percentage of the VTTL decreased in 25 Member States, with the largest improvements noted in Malta, Poland, and Cyprus and increased in three – namely Greece, Latvia, and Germany.
The variations of VAT Gap estimations between the Member States reflect the existing differences in Member States in terms of tax compliance, fraud, avoidance, bankruptcies, insolvencies and tax administration. It offers an indication about the performance of national tax administrations, but should not be looked at in an isolated way.
Other circumstances could have an impact on the size of the VAT Gap such as economic developments and the quality of national statistics.