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EU VAT gap €177m in 2012

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The ‘VAT gap’ across the EU in 2012 stood at an estimated €177bn (£139.8bn), or 16% of the total expected VAT revenues of 26 member states, according to a European Commission study. The VAT gap is the difference between the expected VAT revenue and VAT actually collected by national authorities. While non-compliance is certainly an important contributor to this revenue shortfall, the EC says, the VAT gap is not only due to fraud. Unpaid VAT also results from bankruptcies and insolvencies, statistical errors, delayed payments and legal avoidance, amongst other things.

The study sets out detailed data on the difference between the amount of VAT due and the amount actually collected in 26 member states in 2012. It also includes updated figures for the period 2009–11, to reflect a refinement of the methodology used. The main trends in the VAT gap are also presented, along with an analysis of the impact that the economic climate and policy decisions had on VAT revenues.

In 2012, the lowest VAT gaps were recorded in the Netherlands (5% of expected revenues), Finland (5%) and Luxembourg (6%). The largest gaps were in Romania (44% of expected VAT revenues), Slovakia (39%) and Lithuania (36%). Eleven member states decreased their VAT gap between 2011 and 2012, while 15 saw theirs increase. Greece showed the greatest improvement between 2011 (€9.1bn, or £7.2bn) and 2012 (€6.6bn, or £5.2bn), although it is still one of the member states with a high VAT Gap (33%). According to the study, the UK VAT gap for 2012 stood at 10% of expected revenues, or €16.6bn (£13.0bn), compared with €15.0bn (£11.9bn) for 2011. (As reported last week, HMRC’s tax gap figures for 2012/13 showed the VAT gap to stand at 12.4bn, 36% of the total £34bn UK tax gap for 2012/13.)

Algirdas Šemeta, EC commissioner for taxation, commented: ‘The VAT gap is essentially a marker of how effective – or not – VAT enforcement and compliance measures are across the EU. The figures show there is a lot more work to be done. Member states cannot afford revenue losses of this scale. They must up their game and take decisive steps to recapture this public money. The Commission, for its part, remains focused on a fundamental reform of the VAT system, to make it more robust, more effective and less prone to fraud.’