AuthorAdam Smietanka - Mikhail Bonch-Osmolovskiy - Grzegorz Poniatowski
VAT Gap in the EU-28 Member States
page 10 of 99
This Report presents the findings of the 2020 Study to quantify the VAT Gap in the EU Member
States, which is the seventh publication following the original Study conducted by Barbone et
al. in 20131.
We present Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified
methodology for 2019, the year immediately preceding the analysis, and include revised
estimates for 2014-20172. We also include updated and extended results of the econometric
analysis of VAT Gap determinants initiated and initially reported in the 2018 Report
(Poniatowski et al., 2018). As a novelty, we operationalise the econometric analysis to forecast
potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT
Gap in 2020 and 2021.
The VAT Gap, which is addressed in detail by this Report shall be understood as the
Compliance Gap. It is the difference between the expected and actual VAT revenues and
represents more than just fraud and evasion and their associated policy measures. The VAT
Gap also covers VAT lost due to, for example, insolvencies, bankruptcies, administrative
errors, and legal tax optimisation. It is defined as the difference between the amount of VAT
collected and the VAT Total Tax Liability (VTTL) namely, the tax liability according to tax law.
The VAT Gap can be expressed in absolute or relative terms, commonly as a ratio of the VTTL
or gross domestic product (GDP). In this Report, we refer to the VAT Gap as the ratio of the
In addition to the analysis of the Compliance Gap, this Report also updates the Policy Gap
estimates from 2018 as well as the contribution that reduced rates and exemptions made to
these theoretical VAT revenue losses.
The structure of this Report builds on the previous publications. Chapter 1 presents the main
economic and policy factors that affected European Union (EU) Member States (MS) during
the course of 2018. It also includes a decomposition of the change in VAT revenues. The
overall results are presented and briefly described in Chapter 2. Chapter 3 provides detailed
results and outlines trends for individual countries coupled with analytical insights. In Chapter
4, we examine the Policy Gap and the contribution that VAT reduced rates and exemptions
have made to this Gap. Chapter 5 is devoted to the econometric analysis. It provides an
overview of the literature, highlights the most important novelties introduced with this update,
and discusses and visualises the results which are complemented by a robustness check. The
final chapter presents the impact of the coronavirus recession on the evolution of the VAT Gap.
Annex A contains the methodological considerations underlying all components of the
1 The first study of the VAT Gap in the EU was conducted by Reckon (2009); however, due to differences
in methodology, it cannot be directly compared to these latter studies.
2 The estimates for 2019 are referred to as “fast” since they use different method described in Section d
in Annex A and could be associated with larger estimation error.

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