The vat gap in 2018

AuthorAdam Smietanka - Mikhail Bonch-Osmolovskiy - Grzegorz Poniatowski
Pages16-20
VAT Gap in the EU-28 Member States
page 16 of 99
Figure 1.1. Change in VAT Revenue Components (2018 over 2017, %)
Source: own calculations.
As depicted by Table 1.3 and Figure 1.1 and highlighted in the preceding section, the growth
of the base was the main driver of VAT revenue growth in 2018. An increase in the base
contributed to approximately 78 percent of the total VAT revenue growth in the EU. The effect
of increased compliance contributed to approximately 10 percent of the growth, which
translated to 0.4 percent of the overall VAT revenue.
For the vast majority of EU MS, both the tax base and compliance effect were positive. In five
countries, namely Hungary, Romania, Latvia, Malta, and Poland, the overall effect of the
increase in the tax base and compliance exceeded 10 percent of VAT revenue.
2. The VAT Gap in 2018
The estimates of the VAT Gap presented in this section were derived using the same
methodology as in the previously cited VAT Gap Studies. The VAT Gap is defined as the
difference between the VTTL and the amount of VAT actually collected over the same period.
We compute the VTTL using a top-down consumption-side approach by deriving the
expected VAT liability from the observed national accounts data, such as supply and use tables
(SUT). For this reason, the methodology used in this Study relies on the availability and quality
of SUT data, which vary country to country.
The VAT liability is estimated for final household, government, and NPISH expenditures; non-
deductible VAT from the intermediate consumption of exempt industries; and VAT from the
GFCF of exempt sectors. We also account for country-specific tax regulations, such as
exemptions for small businesses under the VAT thresholds (if applicable); non-deductible
business expenditures on food, drinks, and accommodation; and restrictions to deduct VAT on
leased cars, among others. The precise formula is given in Section c in Annex A.
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BE BG CZ DK DE EE IE EL ES FR HR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK
Effective rate Compliance Base Revenue

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