The vat gap in 2018

• Author: Adam Smietanka - Mikhail Bonch-Osmolovskiy - Grzegorz Poniatowski
• Pages: 16-20

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