Substantial reform of the EU VAT system is expected

By in

Substantial reform of the EU VAT system is expectedA new report on the VAT Gap across 26 member states in 2011 has been recently published by the European Commission. The VAT Gap is defined as the difference between the amount of VAT that could theoretically be collected, and the actual VAT collected by member states. It appeared that 18% of member states’ theoretical value-added tax remains uncollected because of fraud and evasion, legal tax avoidance, bankruptcies, financial insolvencies, miscalculations and the poor performance of tax administrations. The research shows that the VAT Gap across 26 member states in 2011 amounted to EUR193bn (USD261bn), or 1.5% of these states’ combined gross domestic product (GDP). A marked upward trend in the VAT Gap is observed in many member states since 2008 as a result of the economic crisis. This was especially the case in Spain, Greece, Latvia, Ireland, Portugal and Slovakia. On average, the VAT Gap across the EU increased by 5 percentage points once the economic crisis hit. Algirdas Semeta, European Commissioner for Taxation, commented on the figures: ‘Our ambitious reform of the VAT system, the EU measures to combat tax evasion and our recommendations for national tax reforms, are all targeted in the right direction. We know the problem; we have identified solutions to it, and now it’s time for member states to act. Today’s figures will serve as a baseline to assess their progress in improving VAT compliance in the years ahead.’ The study, funded by the Commission, has been released to support its efforts for a substantial reform of the VAT system in Europe, as well as its wider campaign to clamp down on tax evasion.