Romania reported the largest VAT gap in the EU in 2015, of 37.2%, according to a study by the European Commission released on September 28.
The VAT gap is the overall difference between the expected VAT revenue and the amount actually collected. According to the study, the wide variations in the gap across the bloc reflect differences in tax compliance, fraud, avoidance, bankruptcies, insolvencies and tax administration.
It also offers an indication about the performance of national tax administrations, although the commission warns it “should not be looked at in an isolated way”, as the gap could reflect other factors such as economic developments.
High VAT gaps were also registered in Slovakia (29.4%) and Greece (28.3%), while the smallest gaps were seen in Spain (3.5%) and Croatia (3.9%).
While the collection of VAT revenues shows some signs of improvement in the EU, the missing amounts remain "unacceptably high", the EC said.
"Member states should not accept such shocking losses of VAT revenues. While the commission is supporting efforts to improve collection throughout the EU, current VAT rules date from 1993 and are outdated. We will soon propose to revamp the rules governing VAT on cross-border sales. Our reform will help cut cross-border VAT fraud by 80% and get badly-needed money back to member state coffers," Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs, said.
This October, the EC will set out proposals for the update of the EU's VAT rules. VAT fraud should become easier to tackle and VAT collection be made more efficient, the commission said.
In Romania, VAT on food was slashed from 24% to just 9% in June 2015, followed by more modest cuts to the general VAT rate, which was most recently lowered to 19% in January. VAT is expected to be further cut to 18%.
There are some signs of improvement in Romania since the EC study was compiled; VAT collection increased by 1.5% y/y in July-August, according to recent data from the finance ministry.