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.
What is the VAT Gap?
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.
What are the main findings of the 2018 Report on the VAT Gap?
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%.
The VAT system is a major and growing source of revenue in the EU, however the current VAT system has been unable to keep pace with the challenges of today's global, digital and mobile economy. It needs to be modernized because it is too complex for the growing number of EU businesses operating cross-border, leaving the door open to fraud.
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