The Tax Foundation recently released the VAT Expansion and Labor Tax Cuts report.
The value-added tax (VAT) is a major source of revenue for EU countries. For Member States, it represents on average 17.8 percent of their total tax revenue. For the EU, VAT revenue represented roughly 7.5 percent of its total revenue in 2021.
While the European Commission focuses on improving VAT compliance, policy is a major contributor to VAT revenue losses. The VAT Actionable Policy Gap—the additional VAT revenue that could realistically be collected by eliminating reduced rates and certain exemptions—is just above EUR 310 billion, more than triple the Compliance Gap—the additional VAT revenue that could be collected if all taxpayers, consumers, and businesses fully complied with the VAT rules.
The largest Actionable Policy Gaps in the EU are in France (EUR 72 billion), Germany (EUR 68 billion), Italy (EUR 66 billion), and Spain (EUR 49 billion).
Closing the Actionable Policy Gap would increase Spain’s and Greece’s VAT revenues by 70.5 percent and Italy’s by 66.6 percent. It would also provide enough revenue for Cyprus, Croatia, France, Greece, and Ireland to eliminate their income taxes altogether or reduce the EU’s VAT average standard rate from 22 percent to 15 percent.
Closing the VAT Policy Gap would give governments the opportunity to simplify consumption and income taxes while supporting long-term growth.
To read the full report click here.