Latest estimate on lost EU VAT shows €6.6bn shrinkage – but COVID-19 effect won’t show till next year
The European Union member states are estimated to be losing €134 billion per annum in Value Added Tax revenues based on the European Commission’s (EC) latest ‘VAT Gap’ estimate – for the year 2019. This represents 10.3% of EU-wide VAT revenues (11.1% for prior review period, 2018).
The VAT Gap seeks to estimate the difference between tax forecasts and actual receipts. Losses are down to:
- liquidations of companies owing VAT;
- tax authorities administrative inefficiencies
- lawful VAT structure optimisation; and
Whilst a good improvement, this would still take 13 years to wipe out the gap at this rate of improvement. Last year’s VAT Gap report warned of a likely heavy loss due to the economic effects of COVID-19. It estimated a €24 billion hit due to the pandemic lockdown. Earlier this year, the EU Parliament VAT recommendation reforms to deliver €71 billion in tax savings on the VAT Gap. This included introduction the definitive VAT regime and e-invoicing.
The European Commission Taxud is launching a EU VAT Gap Initiative in 2022 to help exchange ideas between EU member states’ tax administrations to help close the gap.
€6.6 billion improvement on last year
On last’s year’s estimate of VAT Gap of €140 billion, this is a saving of €6.6 billion. The biggest improvements were seen in Greece, Lithuania, Bulgaria and Slovakia. These numbers still include the UK which was still a member of the EU.
In 2019, Romania recorded the highest national VAT compliance gap with 34.9% of VAT revenues going missing in 2019, followed by Greece (25.8%) and Malta (23.5%). The smallest gaps were observed in Croatia (1.0%), Sweden (1.4%), and Cyprus (2.7%). In absolute terms, the highest VAT compliance gaps were recorded in Italy (€30.1 billion), which accounts for 26% of all missing EU VAT (after stripping out UK).
Romania remains top of the list for lost revenues