VAT Gap in the EU. Report 2022

VAT is one of the core sources of government revenue in the EU. Meeting the fiscal objective of VAT requires confronting the key challenge of taxpayer non-compliance with VAT payment obligations. It also requires sensible decisions regarding narrowing the tax base or reducing VAT liability for certain parts of the tax base. The relevance of the problem of foregone revenue due to non-compliance and the design of the tax rules would be largely unknown without tax gap estimates. This 10th publication of the European Commission presenting VAT gap estimates aims to support tax administrations in their tax gap monitoring efforts. One of the main findings is that in 2020, the VAT compliance gap in the EU27 dropped sharply year-over-year, by approximately 2 percentage points of the VAT total tax liability and, in nominal terms, by EUR 31 billion. The overall loss of revenue due to non-compliance in the EU27 in 2020 was estimated at EUR 93 billion. The statistical analysis of the shifts in the VAT compliance gap and other developments following the outbreak of the COVID-19 pandemic indicates that the main driving force of the increased compliance was government support measures.

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This report was written by a team of experts from CASE directed by Grzegorz Poniatowski, and composed of Mikhail Bonch-Osmolovskiy, Adam Śmietanka, and Agnieszka Pechcińska. Research assistance was provided by Aleksandra Sojka. The Project was coordinated by Roberto Zavatta (Economisti Associati, Bologna), Stanislav Bieliei and Marek Peda (CASE, Warsaw).