VAT Gap: EU countries lost €93 billion in VAT revenues in 2020
EU Member States lost an estimated €93 billion in Value-Added Tax (VAT) revenues in 2020, according to the 2022 Report on the VAT Gap released by the European Commission. Though still extremely high, the 'VAT Gap' – the estimated difference between expected revenues in EU Member States and the revenues actually collected – dropped by approximately €31 billion compared to the 2019 figures. This increase in VAT compliance can be explained to some extent by the effect of government support measures introduced in response to the COVID-19 pandemic, which were contingent on paying taxes. However, the VAT Gap clearly remains an important problem, at a time when governments need sustainable revenues to help weather today’s economic uncertainty.
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.
The VAT Gap – Facts and Figures
The missing VAT revenues could pay for:
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 is a proxy of 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 reduce debt-to-GDP ratios in the wake of the COVID-19 pandemic, or raise their climate financing ambitions.
- VAT does not only contribute to national budgets but is also a source of revenue for the EU budget. It is therefore imperative that work at the EU-level complements Member States’ actions in the area of VAT. For this reason, the European Commission has put forward new measures on VAT in the digital age to improve VAT collection and to reduce the VAT Gap.
- Estimates of the scale of the VAT Gap can help to develop well-targeted measures and monitor their effectiveness.
What are the main findings of the 2022 Report on the VAT Gap?
In nominal terms, the overall EU VAT Gap decreased by more than €31 billion to €93 billion in 2020. The increase in VAT compliance can be explained by the introduction of government support measures which were often contingent on paying taxes.
In 2020, Romania recorded the highest national VAT compliance gap with 35.7% of VAT revenues going missing in 2020, followed by Malta (24.1%) and Italy (20.8%). The smallest gaps were observed in Finland (1.3%), Estonia (1.8%), and Sweden (2.0%). In absolute terms, the highest VAT compliance gaps were recorded in Italy (€26.2 billion) and France (€14 billion).
Across the EU, the absolute year-over-year change in the VAT Gap was 2 percentage points. Overall, the VAT Gap share decreased in 20 Member States. The most significant decreases in the VAT Gap occurred in Hungary, Germany and the Netherlands (between -4.7 and -4.1 percentage points in these three countries). In addition to Germany and the Netherlands, Spain and Latvia succeeded in limiting the loss in VAT revenues to less than 5% of the VAT due. On the other hand, the biggest increases in the VAT Gap were observed in Croatia (+6.0 percentage points) and Cyprus (+5.0 percentage points).
| Country | Vat Gap in 2020 (EUR million) |
|---|---|
| Austria | 2 660 |
| Belgium | 4 784 |
| Bulgaria | 379 |
| Czechia | 2 164 |
| Croatia | 466 |
| Cyprus | 122 |
| Denmark | 1 643 |
| Estonia | 45 |
| Finland | 281 |
| France | 13 962 |
| Germany | 11 076 |
| Greece | 3 178 |
| Hungary | 720 |
| Ireland | 1 947 |
| Italy | 26 217 |
| Latvia | 95 |
| Lithuania | 952 |
| Luxembourg | 240 |
| Malta | 270 |
| Netherlands | 1 714 |
| Poland | 5 320 |
| Portugal | 1 609 |
| Romania | 7 421 |
| Slovakia | 1 101 |
| Slovenia | 206 |
| Spain | 3 396 |
| Sweden | 915 |
Previous VAT gap reports
- Report 2022: Tables Report - Graphs Report - Tables Country Chapter
- Report 2021: VAT gap in the EU - Report 2021
- 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