The share of uncollected VAT (the VAT gap) was the highest among the European Union’s 28 states in Romania, reaching 35.9% in 2016 up from 34.5% versus a median average of 10% for the whole union, according to European Commission calculations. The lowest VAT gaps were in Luxembourg (0.85%) and Sweden (1.08%) and, in the region, in Croatia (1.15%).
The deterioration was surprising in Romania, since the effective VAT rate (the general rate) was cut from 24% to 20% in the year. Nonetheless, VAT compliance also deteriorated and despite substantial expansion of the VAT base (12.1% y/y thanks to robust private consumption growth) collection contracted by 14.4% y/y — the only decline seen among EU28 states.
With the exception of Croatia, Estonia and Slovenia, the VAT gaps in Central, Eastern and Southeast European EU member states were above the average for the bloc. The VAT deficit was 13.3% in Hungary, 14.2% in the Czech Republic, 20.8% in Poland and 25.7% in Slovakia.
An outstanding performance was registered by Bulgaria: the VAT gap dropped by 10pp to 14% in only two years (2014-2016). The growth of revenue by 8.8% in 2016 was driven mostly by the increase in VAT compliance and was the highest across the EU.
|pp y/y change||change Effective Rate||change in VAT compliance||change in Base||change in Revenues|
VTTL = VAT Total Tax Liability