The report offers an extensive analysis of the value-added tax (VAT) compliance and policy gaps across the EU, reflecting trends between 2018 and 2022. It explores the discrepancy between the theoretical VAT Total Tax Liability (VTTL) and actual revenue collected, providing insights into compliance inefficiencies and policy-induced revenue losses.
Key areas covered:
- Economic and Policy Context: The COVID-19 pandemic and the subsequent recovery significantly influenced VAT revenues. Inflation and the Russian-Ukrainian war’s economic impact also shaped the VAT landscape, leading to adjustments in VAT policies across Member States.
- Compliance and Policy Gaps: The EU’s VAT compliance gap was estimated at 7% of the VTTL in 2022, equating to €89.3 billion in uncollected revenue. This marks an increase from 2021 but a decline from pre-pandemic levels. Notable reductions in compliance gaps were observed in certain Member States due to targeted measures.
- Impact of E-Commerce and Digital Payments: The rise in digital transactions contributed positively to VAT compliance by reducing opportunities for cash-based tax evasion, though challenges in e-commerce VAT collection remain.
- Sector-Specific Challenges: The services and tourism sectors exhibited higher risks of VAT non-compliance due to their diversity, intangibility, and informal activities.
- Case Studies: The report highlights success stories in narrowing compliance gaps, particularly in Central and Eastern European countries, and examines the pandemic’s effects on VAT compliance.
The study incorporates innovative methodologies, such as a granular breakdown of policy gap components and estimates of “actionable standard VAT rates,” to refine its assessments. Its findings are crucial for shaping future VAT policies and improving collection efficiency within the EU.
