EU failing on €177 billion VAT Gap
Figures issued on 23 October 2014 by the European Commission show that the VAT Gap – an estimate of uncollected VAT – is continuing to grow despite the efforts of the tax authorities.
The new estimates, covering 2012, of the amount of VAT that should have been collected vs actual receipts is €177 billion. This is an increase of €6 billion on 2011.
Components of the VAT Gap
Each year, the EC attempts to estimate the amount of VAT that is due based on economic activity across the member states, and compare this with the actual collected by all the member states’ tax authorities. The issues that give rise to the VAT Gap include:
- Organised fraud
- Bankruptcies of firms owing VAT receipts
- Poor administration by the tax authorities
- Tax breaks given to specific sectors (‘Policy Gap’)
Fraud remains a problem despite a range of measure to cut down on it in sectors such as mobile phones, tablets, carbon trading and electricity. The member states are still slow to exchange cross-border information making it easy for criminal gangs to stay ahead.