Ireland could be losing out €1.22bn in revenue each year over its failure to collect tax on all goods and services liable for Vat, according to an EU report.
A study commissioned by the European Commission has estimated that the tax authorities in Ireland are missing out on up to 11% of all potential Vat revenue.
Official figures show Vat receipts in Ireland totalled almost €10.4bn in 2013 — the latest year for which comparative figures across the EU are available. However, it is estimated the total amount that was liable for Vat was just under €11.6bn.
The European Commission believes the “Vat gap” in all EU states could be reduced through improved enforcement and compliance measures.
The “Vat gap” is calculated as the difference between the total tax liability and the actual revenue collected. The gap is explained by the amount of Vat lost through a combination of fraud, evasion, tax avoidance, bankruptcies, financial insolvencies, and miscalculation.
In Ireland, the Vat gap averaged 8% between 2000 and 2011. However, the report say the figure masks a deterioration following the onset of the economic crisis.
The value of the Vat gap rose from just €112m in 2001 when it was 1% of collectible Vat to a peak of more than €1.7bn in 2009 when it amounted to 14% of collectible Vat. Since 2011, the Vat gap in Ireland has continued to fall, although Vat revenue has simultaneously grown against a background of ongoing economic recovery.
The study found across EU member states Vat revenue collection has failed to show significant improvement in 2013 compared to the previous year. Nevertheless, Ireland was one of 15 EU states to record progress in narrowing the gap. The amount of Vat lost across the EU was estimated at €168bn in 2013 — a figure that equates to 15.2% of all Vat collected. However it has reduced from €193bn in 2011.
The Vat gap ranged from 4% in Finland, the Netherlands, and Sweden to 41% in Romania. The report said overall results were in line with general economic conditions in Europe as the EU economy was essentially stagnant in 2013.
In the EU, there is a minimum standard Vat rate of 15%, above which member states are free to set their own national Vat rates.
Pierre Moscovici, EU commissioner for economic and financial affairs, taxation, and customs said: “This important study highlights once again the need for further reform in Vat collection systems across the EU.”
Pierre Moscovici, EU commissioner for economic and financial affairs, taxation, and customs
Mr Moscovici urged EU member states to take steps need to fight tax evasion and tax fraud at all levels. He said it remained a burning issue which was at the top of the commission’s agenda.
The study also estimates that Ireland has one of the highest levels in the EU of another measurement — the Policy Gap — which tries to capture the effect of discretionary decisions by EU member states to have multiple Vat rates and exemptions.
In May, Finance Minister Michael Noonan said the tax strategy group paper on Vat prepared in advance of Budget 2015 had estimated that a standard rate of 15% could be achieved on a broadly revenue neutral basis by merging all existing VAT rates from 0% to 23%.
He added: “However, this would involve applying Vat to food, children’s clothes and oral medicines as well as raising the Vat rate on a range of other areas of consumption such as fuel and hospitality services.”
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