Latest VAT Gap Report Reveals Promising Findings for EU Countries
In a recent report published by the European Commission, some interesting insights have emerged regarding the Value Added Tax (VAT) Gap in the European Union (EU) for the year 2021. The report highlights a significant reduction in the VAT Gap, with the total amount decreasing by 38.7 billion EUR compared to the previous year, reaching a total of 60.6 billion EUR. This is a positive development for EU member states, as it indicates improved tax compliance and revenue collection.
The VAT Gap is calculated as the difference between the expected VAT revenue and the actual amount collected by tax authorities. It serves as an important indicator of the effectiveness of VAT systems and the level of tax evasion within a country. In 2021, the VAT Gap as a percentage of GDP stood at 5.37%, a substantial decrease from the 9.65% recorded in 2020.
Among the EU member states, Italy continues to have the highest VAT Gap, amounting to 14 billion EUR. This is followed by Romania, with a VAT Gap of 36.7%, indicating the need for further efforts to improve tax compliance in these countries. On the other end of the spectrum, the Netherlands boasts the lowest VAT Gap, with a surplus of 0.1 billion EUR, suggesting a successful VAT collection system in place.
When comparing the VAT Gap to total revenues, Romania once again takes the top spot with a gap of 36.7%. Conversely, the Netherlands has the lowest gap in this regard, with a surplus of -0.2%. These figures demonstrate the varying levels of tax compliance across EU member states.
In terms of progress made in reducing the VAT Gap from 2020 to 2021, Italy stands out with a reduction of 10.7%. This indicates that efforts to combat tax evasion and improve revenue collection in Italy have been successful. On the other hand, Denmark experienced a slight increase of 0.7% in its VAT Gap, highlighting the need for continued vigilance in maintaining tax compliance.
Looking at the standard VAT rates across the EU, Hungary still holds the record for the highest rate at 27%, while Luxembourg maintains the lowest rate at 17%. The average standard VAT rate in the EU stands at 21.44%, reflecting the diversity in taxation policies among member states.
When examining the effective VAT rates, which take into account reduced rates and exemptions, Croatia has the highest rate at 15.5%, while the lowest rate is observed in Luxembourg at 8.6%. The average effective VAT rate in the EU is 11.83%. These figures shed light on the varying levels of taxation across different sectors and products within member states.
Overall, the latest VAT Gap report provides encouraging insights for EU countries. The significant reduction in the VAT Gap indicates improved tax compliance and revenue collection, which is crucial for funding public services and driving economic growth. However, it is important for member states to continue their efforts in combating tax evasion and ensuring fair and effective taxation systems. By doing so, they can further reduce the VAT Gap and create a more equitable and prosperous EU.
