The annual estimate by the European Commission of the amount of missing VAT – the ‘VAT Gap’ – has remained constant at €140 billion for 2018. However, the EC is now forecasting a rise in this to €164bn, 14% of revenues, for 2020 as a result of the coronavirus epidemic.
The EC plans to launch a VAT Gap Initiative in the third quarter of 2022 to share best practises on VAT administration and collections.
Whilst 2018’s VAT GAP is a small drop, is shows continuing progress on reducing missing tax revenues. The European Commission (EC) has proposed an ambitious reform of the EU VAT regime, the definitive vat system, for July 2022 to tackle the estimated €50bn in annual VAT losses due to missing trader fraud. But there is limited political will in many member states due to design worries.
The measure, produced by the EC, compares expected VAT revenues to those actually received. It provides an estimate of revenue loss due to tax fraud, tax evasion and tax avoidance, but also due to bankruptcies, financial insolvencies or miscalculations.
Fast estimates show that the VAT Gap will likely continue to decline in 2019.
Key element from the 2018 numbers include:
- The largest reductions were in Hungary, Poland, Latvia and Greece
- The average VAT Gap across the EU28 (UK still included) is 11%, down from 14.3% in just 2014.
- Poland continues to make excellent progress on closing its VAT Gap, down again to 9.9% of revenues
- Greece is showing good promise with a 3% of revenues drop in its VAT Gap – although its total at 30% is second only to Romania
- Only Sweden experienced a slight increase.
- Italy’s VAT Gap of €35.4bn accounts for 25% on the EU’s total
- The largest nominal VAT Gaps are in the UK (€23.5bn) and Germany (22.1bn)
- Romania continues to have the largest % VAT Gap at 34% of revenues