showCASE No. 110: The nitty-gritty of the Polish VAT Gap
In this issue of showCASE, we discuss determinants and historical dynamics of the Polish VAT Gap. In addition, we show what lessons from the past could be drawn for foresighting dynamics of the VAT Gap, especially in the context of the COVID-19 pandemic.
Using the results of the latest Report on the VAT Gap in the EU-28 Member States prepared by CASE, we show how crucial macroeconomic conditions are for VAT compliance. Non-favourable economic situation, therefore, adversely affects VAT revenues in two ways: through lower tax base and via a higher tendency for non-compliance of business entities. Given the economic slowdown induced by the COVID-19 pandemic, even stabilisation of the Polish VAT Gap at the level observed in recent years will be considered a success.
Written by: Adam Śmietanka
The topic of the VAT compliance has gained a particular significance in the recent years in Poland. It has become a part of a recurrent, heated political debate and has been often used instrumentally by politicians and experts alike. However, a growing interest in the forgone VAT revenues is not just limited to Poland. Thus, as the estimation techniques and underlying data on VAT components have been improving, Poland and many other countries in the EU have seized the opportunity to scrutinise national VAT Gaps and estimate their size using various techniques.
This article discusses observations for Poland based on the results and experience gained from estimating and evaluating the VAT Gap in all EU Member States. These conclusions relate to both the past and the future. Firstly, we summarise basic information on the topic, specifically in the historical context of the public finance in Poland. Second, we show what lessons from the past could be drawn for foresighting dynamics of the VAT Gap, especially in the context of the COVID-19 pandemic.