VAT Gap

VAT Gap: EU countries lost €134 billion in VAT revenues in 2019

EU Member States lost an estimated €134 billion in Value-Added Tax (VAT) revenues in 2019, according to the 2021 Report on the VAT Gap released by the European Commission. Though still extremely high, the 'VAT Gap' – the difference between expected revenues in EU Member States and the revenues actually collected – has been improving between 2015 and 2019. The full extent of the COVID-19 pandemic on consumer demand and therefore on VAT revenues in 2020 remains yet unknown, but a reversal of this positive trend may be expected. 

Despite the positive trend registered in the last few years, the VAT Gap remains a major concern – particularly in view of the immense investment needs our Member States must address in the coming years. This year’s figures correspond to a loss of more than €4 000 per second. These are unacceptable losses for national budgets, and mean that ordinary people and businesses are left to pick up the shortfall through other taxes to pay for vital public services. We need to make a joint effort to crack down on VAT fraud, a serious crime that takes money out of consumers’ pockets, undermines our welfare systems and depletes government coffers.
Paolo Gentiloni, Commissioner for Economy

What causes the VAT Gap?

EU Member States are losing billions of euros in VAT revenues because of tax fraud and inadequate tax collection systems. The VAT Gap provides an estimate of the VAT revenue loss due to tax fraud, tax evasion, tax avoidance and optimisation practices, bankruptcies, financial insolvencies, as well as miscalculations and administrative errors. Other circumstances that could have an impact on the size of the VAT Gap include economic developments and the quality of national statistics.

Why is monitoring of the VAT Gap important?

Variations in VAT Gap estimations between EU countries reflect the existing differences in Member States in terms of tax compliance, fraud, avoidance, bankruptcies, insolvencies and tax administration.

It is important to monitor the VAT Gap since:

• It measures the performance of national tax administrations in their VAT collection.
   
• Lost VAT revenues have an extremely negative impact on government spending in public goods and services such as schools, hospitals and transport. The missing VAT could also prove beneficial as Member States strive to cover debt incurred during the initial recovery from the COVID-19 pandemic, or raise their climate financing ambitions.
   
• VAT does not only contribute to national budgets but it is a source of revenue for the EU budget. It is therefore fundamental to work also at the EU-level towards improving VAT collection and reducing the VAT Gap.
   
• Quantifying the scale of the VAT Gap can help to develop well-targeted measures and monitor their effectiveness.

What are the main findings of the 2021 Report on the VAT Gap?

In nominal terms, the overall EU VAT Gap decreased by almost €6.6 billion to €134 billion in 2019, a marked improvement on the previous year's decrease of €4.6 billion. This downward trend was expected to continue, though the coronavirus pandemic is likely to revert the positive trend.

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) and Germany (€23.4 billion).

In most Member States, the absolute year-over-year change in the VAT Gap was lower than 2 percentage points. Overall, the VAT Gap share decreased in 18 Member States. In addition to Croatia and Cyprus, the most significant decreases in the VAT Gap occurred in Greece, Lithuania, Bulgaria and Slovakia (between –3.2 and -2.2 percentage points in these four countries). Sweden, Finland and Estonia were successful from a different perspective: in these countries, fiscal authorities have for years succeeded in limiting the loss in VAT revenues to less than 5% of the VAT due. The biggest increases in the VAT Gap were observed in Malta (+5.4 percentage points), in Slovenia (+3 percentage points) and in Romania (+2.3 percentage points).

Previous VAT gap reports

• Report 2020: Study and reports on the VAT gap in the EU-28 Member States
   
• Report 2019: Study and reports on the VAT gap in the EU-28 Member States
   
• Report 2018: Study and reports on the VAT gap in the EU-28 Member States
   
• Report 2017: Study and reports on the VAT gap in the EU-28 Member States
   
• Report 2016: Study and reports on the VAT gap in the EU-28 Member States
   
• Report 2015: Study to quantify and analyse the VAT gap in the EU Member States
   
• Report 2014: 2012 update report to the study to quantify and analyse the VAT gap in the EU-27 Member States
   
• Report 2013: Study to quantify and analyse the VAT gap in the EU-27 Member States
   
• Report 2009: Study to quantify and analyse the VAT gap in the EU-25 Member States