EU countries lost an estimated €140 billion in Value-Added Tax (VAT) revenues in 2018, according to a new report released by the European Commission today.
Though still extremely high, the overall ‘VAT Gap’ – or the difference between expected revenues in EU Member States and the revenues actually collected – has improved marginally in recent years. However, figures for 2020 forecast a reversal of this trend, with a potential loss of €164 billion in 2020 due to the effects of the coronavirus pandemic on the economy.
In nominal terms, the overall EU VAT Gap slightly decreased by almost €1 billion to €140.04 billion in 2018, slowing down from a decrease of €2.9 billion in 2017. This downward trend was expected to continue for another year, though the coronavirus pandemic is likely to revert the positive trend.
The considerable 2018 VAT Gap, coupled with forecasts for 2020 – which will be impacted by the coronavirus pandemic – highlights once again the need for a comprehensive reform of EU VAT rules to put an end to VAT fraud, and for increased cooperation between Member States to promote VAT collection while protecting legitimate businesses. The Commission’s recent Fair and Simple Taxation package (July 2020) also details a number of upcoming measures in this area.
Paolo Gentiloni, Commissioner for Economy, said: “Today’s figures show that efforts to shut down opportunities for VAT fraud and evasion have been making gradual progress – but also that much more work is needed. The coronavirus pandemic has drastically altered the EU’s economic outlook and is set to deal a serious blow to VAT revenues too. At this time more than ever, EU countries simply cannot afford such losses. That’s why we need to do more to step up the fight against VAT fraud with renewed determination, while also simplifying procedures and improving cross-border cooperation.”
Main results in Member States
As in 2017, Romania recorded the highest national VAT Gap with 33.8% of VAT revenues going missing in 2018, followed by Greece (30.1%) and Lithuania (25.9%). The smallest gaps were in Sweden (0.7%), Croatia (3.5%), and Finland (3.6%). In absolute terms, the highest VAT Gaps were recorded in Italy (€35.4 billion), the United Kingdom (€23.5 billion) and Germany (€22 billion).
| Member State | VAT Gap % | VAT Gap (in €mn) | Member State | VAT Gap % | VAT Gap (in €mn) |
| Belgium | 10.4% | 3,617 | Lithuania | 25.9% | 1,232 |
| Bulgaria | 10.8% | 614 | Luxembourg | 5.1% | 199 |
| Czechia | 12.0% | 2,187 | Hungary | 8.4% | 1190 |
| Denmark | 7.2% | 2,248 | Malta | 15.1% | 164 |
| Germany | 8.6% | 22,077 | The Netherlands | 4.2% | 2,278 |
| Estonia | 5.2% | 127 | Austria | 9.0% | 2,908 |
| Ireland | 10.6% | 1,682 | Poland | 9.9% | 4,451 |
| Greece | 30.1% | 6570 | Portugal | 9.6% | 1,889 |
| Spain | 6.0% | 4,909 | Romania | 33.8% | 6,595 |
| France | 7.1% | 12,788 | Slovenia | 3.8% | 148 |
| Croatia | 3.5% | 252 | Slovakia | 20.0% | 1,579 |
| Italy | 24.5% | 35,439 | Finland | 3.6% | 807 |
| Cyprus | 3.8% | 77 | Sweden | 0.7% | 306 |
| Latvia | 9.5% | 256 | United Kingdom | 12.2% | 23,452 |
Individual performances by Member States still vary significantly. Overall, in 2018 half of EU-28 Member States recorded a gap above the median of 9.2%, though 21 countries did see decreases compared to 2017, most significantly in Hungary (-5.1%), Latvia (-4.4%), and Poland (-4.3%). The biggest increase was seen in Luxembourg (+2.5%), followed by marginal increases in Lithuania (+0.8%), and Austria (+0.5%).
