The EU Commission has published its findings concerning the latest study into the difference between the amount of VAT actually collected and the VAT Total Tax Liability (VTTL) – otherwise known as the VAT gap.
Although the VTTL is an estimate of the theoretical amount of VAT that should be collected, it is a useful indicator in assessing the effectiveness of each EU Member State in collecting VAT across the EU. Analysing this information can help form more robust policies to improve VAT compliance and enforcement whilst providing a way to measure progress over time.
The main findings of the latest study completed this year but studied 2013, found that the VTTL for the EU grew by about 1.2%, whilst VAT revenue increased by 1.1%. This resulted in an overall increase in the VAT Gap in absolute values of approximately EUR 2.8 billion – EUR 168 billion as a total figure.
The study highlights the disparity between those countries with an effective system and those with an ineffective system. Specific examples of effective regimes included that of Finland (4.1%), Netherlands (4.2%) and Sweden (4.3%), and ineffective regimes such as Romania (41.1%), Greece (34%), Lithuania (37.7%) and Italy (33.6%). The UK’s VAT gap was 9.8% which equates to EUR 15.4 billion.
Interestingly, the report also introduced the results of a new study called the Policy gap. This is an indicator of the additional revenue that a Member State could theoretically collect if it applied its standard rate to all supplies. This can further be broken down in to the Rate gap and Exemption gap; the former being the loss due to the application of reduced rates and the latter the loss due to the use of exemptions.
The study found that the Policy gap in 2013 was higher than the VAT gap and that this is a continuing trend. Policy gaps were lowest in Slovakia and Bulgaria (27%) and highest in Spain and Belgium (54%). The exemption gap was highest in Finland (43%) and lowest in Lithuania (22%). The rate gap ranged from a low of 1% in Denmark to a high of 19% in Portugal. The general consensus of the study is that the focus should be on better enforcement of VAT as opposed to looking at limiting the scope of exemptions and reduced rates.
The full report is available here.