The digitalization of tax has led to a 38% reduction in the VAT gap across the European Union, with member states recording around €61 billion in lost VAT revenues in 2021, down from €99 billion in 2020. The VAT gap is the difference between the theoretically expected VAT revenues in EU countries and the actual amount of VAT collected, created by activities such as VAT fraud, evasion and avoidance, miscalculations, insolvencies, and non-fraudulent bankruptcies. Increasing enforcement of VAT compliance is crucial to ensure member states realize maximum revenues from indirect taxes, which are typically used to fund critical public services. The EU’s widest VAT gap is found in Romania, while the smallest can be found in the Netherlands. Digitalization has played a key role in closing the VAT gap through new digital reporting tax technology, real-time data tracking and analytics, and e-invoicing. The proposed VAT in the Digital Age (ViDA) scheme will mandate even more digital requirements across the EU, including plans for a cross-border digital reporting system based on e-invoicing for B2B transactions.
Source Innovate Tax
