The European Commission has released its updated report on missing VAT revenues. The VAT Gap Report, published in December 2021, reveals that EU Member States lost an estimated €134 billion VAT in 2019.
The VAT Gap Report measures the difference between expected VAT revenue and the actual amount collected. The Commission attributes the losses to VAT fraud and evasion as well as various VAT avoidance measures. In addition, VAT revenues were lost due to business problems, such as bankruptcies and insolvencies. Error and misadministration also contributed to the VAT gap.
Mind the gap
According to the report, Romania had the highest VAT compliance gap of any EU state, with 34.9% of VAT revenues missing in 2019. Italy and Germany recorded the largest compliance gaps in absolute terms, with VAT gaps of €30.1 billion and €23.4 billion respectively.
Improvements in compliance
Overall, the VAT gap trend is positive. The 2019 VAT gap across the EU decreased at a higher rate than the previous year. According to the Commission, the VAT gap has improved consistently between 2015 and 2019. However, consumer demand was reduced during 2020 due to Covid. The effect on VAT revenue still needs to be fully assessed.
Cracking down on VAT evasion
Paolo Gentiloni, the EU Commissioner for Economy, explained that figures represent a loss of over €4 000 per second. Gentiloni said that the losses highlight the urgent need to combat VTA evasion: “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.”
Enhanced VAT compliance and recovery
Policymakers are continually developing new regulations to detect and punish VAT evasion. Businesses therefore need effective processes to ensure they are fully VAT compliant, everywhere they operate.
VAT IT specialist VAT team makes full compliance easy to achieve. As leading VAT recovery specialist, VAT IT will also ensure that you maximally claim back all the VAT to which your business is entitled. It’s a more optimal way to manage your VAT.