VAT gap in the EU : 2024 report

Value Added Tax (VAT) in the European Union (EU) is a broad-based tax levied on goods and services used or consumed in the territory of the EU. It serves as one of the core revenue sources for the general government of EU Member States. In 2023, the VAT revenue-to-GDP ratio amounted to 7.2% of the EU GDP and 15.7% of total government revenue. This makes VAT essential for financing the provision of public goods and services and for ensuring the financial stability of governments. VAT is also significant for the EU budget, as its base is used to calculate a portion of the EU's own resources. Naturally, VAT rules shape Member States' economies and play a crucial role in the EU Single Market. In one of the possible formulations, VAT revenue can be viewed as the product of three elements: 1) the tax base; 2) the statutory standard rate; and 3) collection efficiency. The importance of the latter component, VAT collection efficiency, should not be underestimated. As demonstrated by earlier studies on the VAT gap in the EU, it substantially differentiates EU economies and tends to change over time in response to government policies and other factors.