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Central, Eastern European VAT Gap At EUR28bn

by Ulrika Lomas,, Brussels

27 June 2016

Uncollected value-added tax revenues are costing the treasuries of five Central and Eastern European (CEE) countries EUR28.2bn (USD32bn) per year, according to a new study by PwC.

Based largely on data from Eurostat, the report, presented at a PwC conference held in Bucharest on June 23, shows that the VAT gap - the difference between theoretical VAT revenue (if the full rate was charged, instead of reduced rates) and actual revenues - ranged from 19.1 percent in the Czech Republic to just under 40 percent in Romania. Substantial VAT gaps were also found in Hungary (20.8 percent), Slovakia (28.3 percent), and Poland (29.2 percent).

PwC said that in revenue terms, in 2014/15, EUR3.1bn in VAT went uncollected in Czech Republic, EUR2.6bn in Hungary, EUR8.3bn in Romania, EUR12bn in Poland, and EUR2.2bn in Slovenia.

Daniel Anghel, PwC CEE Indirect Taxes Leader, said that while a number of CEE countries have introduced measures to reduce the size of their VAT gaps, these have had mixed results.

"Such programs have already delivered spectacular results in Slovakia, where the VAT gap was reduced from 33.9 percent to 28.3 percent in just one year. This was due to a set of measures such as the introduction by the financial administration of analytical software that assesses the data from tax statements in real time, matching the input and the output VAT based on the VAT identification numbers, the creation of a Tax Cobra committee to investigate major tax fraud, in cooperation with the police and the prosecutors, and the creation of tax specialized courts," he observed.

"Yet, other countries seem to lag behind in terms of reducing their VAT gap problem. Both Poland and Romania are reporting high levels of uncollected VAT in 2015, with Romania being last amongst the EU member states in terms of VAT collection. It is clear that authorities in these countries need to reassess the impact of the measures undertaken, including the additional checks on VAT registration, such as the 088 VAT form in Romania, that prove to be burdensome for honest businesses, but do not seem to bring the desired outcome in terms of reducing VAT fraud and increasing tax collection," Anghel added.

TAGS: court | compliance | tax | business | value added tax (VAT) | tax compliance | Hungary | Slovenia | Romania | Slovakia | Czech Republic | Poland | VAT compliance matters | Europe | Tax

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