As a part of a wider initiative to reform VAT system in the European Union, the European Commission published a report that provides estimates of the VAT Gaps for 26 of the 28 current countries of the European Union for the period between 2000 and 2011. According to the study, approximately €193 billion in VAT revenues (1.5% of GDP) was estimated to be lost due to non-compliance or non-collection in 2011.

The VAT gap is not created only by tax evasion, but also by insufficient systems of tax collection of national authorities. The VAT can be lost also due to bankrupcies, statistical errors, delayed payments etc. Therefore, a complex approach i svital to reduce the VAT gap among the member states.

Some steps have already been made, especially in the field of guidance and country specific recommendations by the Commission. Firstly, the VAT system should be simplified and the rules should be more unified across the Member States so as to make it easier for taxpayers to follow the rules. Secondly, tougher and more effective rules should be taken for the entities that do not comply with the rules and evade paying the VAT, especially in the large-scale cases of VAT fraud. Finally, the European Commission calls to broaden national tax bases and to limit tax exemptions and reductions, as it considers complicated tax systems with multiple rates the main reason of such a huge VAT gap.

To see the whole report click here.