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 2016 is estimated at EUR 147.1 billion. This represents a loss of 12.3% of the total expected VAT revenue.
During 2016, the overall VAT Total Tax Liability (VTTL) for the EU Member States stayed approximately the same, while collected VAT revenues rose by 1.1% As a result, the overall VAT Gap in the EU Member States saw a decrease in absolute values of about EUR 10.5 billion, down to EUR 147.1 billion. As a percentage, the overall VAT Gap decreased by 0.9% to 12.3%.
In 2016, Member States’ estimated VAT Gaps ranged from 0.85% in Luxembourg, to 35.88% in Romania.
Overall, the VAT Gap decreased in the majority of Member States, with the largest improvements noted in Bulgaria, Latvia, Cyprus, and the Netherlands and increased in six – namely, Romania, Finland, the UK, Ireland, Estonia, and France.
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.
* A data problem in the previous version of the VAT Gap Study published on 21.09.2018 was addressed. The data in Column H, Table 4.1 (page 53) was rectified.