EU VAT Gap: Insights from Mind the Gap Report

The recently published European Commission report, "Mind the Gap," provides a comprehensive overview of tax gaps across the EU and all 27 EU countries, offering a clearer picture not only of how much tax revenue is lost but also of the main reasons. The report is further supported by two detailed technical studies focusing specifically on VAT and Corporate Income Tax (CIT).

Key EU VAT Gap Findings from the Report

The report, which concentrates primarily on the period from 2019 to 2023 and introduces several critical analytical extensions, highlights that the VAT gap across the EU totaled around EUR 128 billion in 2023, confirming that a large share of potential VAT revenue remains unreported or uncollected. 

The performance rates vary widely across the EU, with Romania and Malta recording the highest VAT compliance gaps at 30% and 24.2%, respectively. Among the best-performing EU countries in this field, Austria, with 1%, and Finland, with 3%, are at the top. In 2024, VAT accounted for 7.1% of the EU’s gross domestic product and 15.5% of total government revenue, confirming its central role in financing public services and maintaining fiscal stability.

Notably, for the first time, the report includes EU candidate countries and potential candidates. The average VAT revenue-to-GDP ratio across the participating countries was 11.3%, and VAT's contribution to total general government revenue ranged from 33% in Serbia to 65% in Bosnia and Herzegovina.

In addition to providing annual estimates of the VAT compliance gap for each EU country and for the EU as a whole (50.5%), the report also includes key innovations in the analysis of the VAT policy gap, which has been substantially revised compared to previous reports. The revised approach clearly distinguishes between revenue losses resulting from national policy choices and those stemming from VAT rules mandated at the EU level.

Conclusion

Overall, the report provides a detailed overview of the EU's VAT system as a whole and for each EU country. Notably, for the first time, EU candidate countries have been included in the report, which should further help integrate them into the EU system. Finally, the report provides actions to reduce the tax gap, including building estimation capacity, reviewing past policy choices, systematic reporting and evaluation, adopting common frameworks, and leveraging digitalization.

Source: European Commission