EU VAT Gap reduced by €38 billion in 2021

27 October 2023| CATEGORIES: EU VAT Gap, VAT compliance| TAGS: EU, Tax gap, VIDA

The EU Commission has published the annual VAT Gap study, which measures the difference between theoretically expected VAT revenues and the amount actually collected.  The report shows that Member States lost around €61 billion in VAT in 2021, compared to €99 billion in 2020.

The lost revenue mainly relates to VAT fraud, evasion and avoidance, non-fraudulent bankruptcies, miscalculations and financial insolvencies. The progress made in reducing the VAT Gap is attributed to improved VAT compliance.

Main results in 2021 

In nominal terms, the overall EU VAT Gap decreased by around €38 billion, from €99 billion in 2020 to €61 billion in 2021, an unprecedented improvement on previous years. A number of Member States such as Italy (-10.7 percentage points) and Poland (-7.8 percentage points) recorded particularly notable reductions in their national VAT Gap figures.

The report shows that targeted policy responses made a difference, particularly those related:

• to the digitalisation of tax systems, real-time reporting of transactions and e-invoicing;
• temporary factors such as government support measures implemented during the COVID-19 pandemic, which were often contingent on paying taxes;
• the growth in electronic payments and online shopping, where the rate of VAT compliance is generally much higher.

VAT in the Digital Age

The Commission’s VAT in the Digital Age (VIDA) proposals, which are currently under discussion between Member States in the Council, include plans for a move to a cross-border digital reporting system based on e-invoicing for business-to-business transactions. The new system is intended to make sure that Member States’ authorities are informed of transactions in almost real time, allowing them to identify instances of VAT fraud more quickly, especially missing trader or carousel fraud.  For further information on the VIDA proposals see our earlier blog article.

The 2023 VAT Gap report can be downloaded here.