Michaela Merz

How to improve VAT revenue collection?

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Based on figures recently published by the European Commission, VAT revenue collection for 2013 has failed to show significant improvement.

During 2013, the overall VAT Total Tax Liability for the EU-26 Member States grew by about 1.2 %, while collected VAT revenues rose by 1.1 %. As a result, the overall VAT Gap in the EU-26 increased by 2.8 billion Euro and reached a total of 168 billion Euro. The overall VAT Gap remained constant at 15.2 % of revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies and miscalculations in 26 Member States. Based on the following graphics taken from the commission report, it is apparent that significant differences existed between Member States, ranging from 4 %in Finland, the Netherlands and Sweden to 41 % in Romania.
VAT Gap in the EU-26 countries, 2012-2013
There is a need to further reform the collection systems across the EU as the effectiveness of VAT enforcement and compliance measures does not seem to be achieving the desired results. In connection with the increased volume of services provided electronically and a shift of the sales from retailers to the Internet, VAT enforcement may be even more challenging in the future.
Data analytics, as a possible solution, might be the right answer. However, if there will not be a unified approach and each country will require the taxpayer to fulfil varying requirements (Hungary – Data export requirements effective as from 1 of January 2016), the effectiveness of collections may increase and approach completeness, however for a very high cost of implementation for the taxpayers.

Source: Study to quantify and analyze the VAT Gap in the EU Member States, 2015 Report

 

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