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VAT collection failing to improve across EU, says Commission

Collection of value-added tax (VAT) across EU member states is not improving, according to the latest available European Commission figures.07 Sep 2015

The 'VAT gap', or difference between the expected revenue and the amount actually collected, was no better in 2013 than in 2012, the Commission said.

While figures for 15 member states including Latvia, Malta and Slovakia improved over the year, 11 member states' figures deteriorated, the Commission said. Estonia and Poland were among those states where the VAT gap grew, it said.

In total around €168 billion is estimated to have been lost across the EU in 2013 due to "fraud and evasion, tax avoidance, bankruptcies, financial insolvencies and miscalculation", the Commission said.

Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs said: "This important study highlights once again the need for further reform in VAT collection systems across the EU. I urge member states to take the steps needed to fight tax evasion and tax fraud at all levels. This remains a burning issue and is at the top of this Commission's agenda."

Indirect tax expert Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com, said that the increase in the VAT gap "will be uncomfortable reading for member state governments with VAT being such a key source of government revenue. This is especially so given the increase in tax loss against a background of very stagnant consumption".

"This would suggest that the EU is right to continue with its focus on combatting the proliferation of organised VAT fraud. For the UK, the picture is somewhat more positive. With an estimated VAT gap of 10% of estimated total VAT take, the UK is comfortably below the EU median rate of 13.9% and this is against a background of rising consumption for most of the period which generated a significant increase in actual VAT revenues for the UK government. Of course the on-going litigation faced by the UK government concerning compound interest due to tax payers on overpaid VAT will be a material concern for it," said Mellor-Clark.

In 2013, the estimated VAT gaps of member states ranged between 4% in Finland, the Netherlands and Sweden to 41% in Romania, the Commission said.

The Commission launched a VAT reform plan in 2011 to encourage stricter enforcement at a national level. It is also working to simplify tax systems, making it easier for taxpayers to comply with the rules, it said.

However, member states also need to reform their national tax systems and modernise their administrations in order to reduce the VAT gap, the Commission said.