EU countries lost an estimated total of EUR 152 billion in VAT revenues in 2015, according to a new study by the European Commission (EC). While average EU figures are improving, individual VAT collection performances vary significantly amongst Member States.
According to EC report, the largest VAT gaps were reported in Romania (37.2 percent), Slovakia (29.4 percent) and Greece (28.3 percent). The smallest gaps were observed in Spain (3.5 percent) and Croatia (3.9 percent). In absolute terms, the highest VAT gap of EUR 35 billion was in Italy.
The VAT gap decreased in most Member States, with the strongest improvements in Malta, Romania and Spain. Seven Member States saw small increases: Belgium, Denmark, Ireland, Greece, Luxembourg, Finland and the UK.
The ‘VAT Gap’, which is the overall difference between the expected VAT revenue and the amount actually collected, again demonstrates the need for serious reform so that Member States can make full use of VAT revenues for their budgets. While the collection of VAT revenues shows some signs of improvement, the missing amounts remain unacceptably high.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs said: “Member States should not accept such shocking losses of VAT revenues. While the Commission is supporting efforts to improve collection throughout the EU, current VAT rules date from 1993 and are outdated. We will soon propose to revamp the rules governing VAT on cross-border sales. Our reform will help cut cross-border VAT fraud by 80 percent and get badly-needed money back to Member State coffers.”
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.
The Commission will table legislative proposals this autumn to re-establish the principle of charging VAT on cross-border trade within the EU. Cross-border fraud accounts for EUR 50 billion of the VAT Gap each year in the EU and the new system should reduce cross-border fraud by 80 percent (about EUR 40 billion).