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Ireland’s VAT Gap – a missing billion?

Posted on January 22, 2014 by Micheál Collins

A recent report from the European Commission (DG TAXUD) offers some interesting insights into the Republic of Ireland’s VAT system and the amount of VAT collected. The report, which examined the VAT systems across EU member states, sets out to estimate the ‘VAT gap’ a measure of the difference between the potential VAT and actual VAT that may be attributed to non-compliance rather than deliberate policy decisions/exemptions etc.

For the Republic of Ireland, here are some of the key findings:

  • In 2011 the VAT gap was estimated to be €1.1bn.
  • The 2011 VAT gap was equivalent to 10% of potential VAT revenue.
  • Over the period 2000-2011 Ireland’s average VAT gap was 8% of potential revenue (an average of €940m per annum).
  • The VAT gap increased during the economic crisis, hitting 15% in 2009 (€1.8bn)

Across EU member states, the 2011 VAT gaps ranged from 4% in Sweden and 5% in the Netherlands to highs of 30% in Greece, 35% in Lithuania and 42% in Romania. In relative terms the Republic of Ireland performs well. However, potential remains for further revenue collection; a challenge given developments over recent years to shrink resources and staff numbers at the Revenue Commissioners.

The EU report is available here: http://ec.europa.eu/taxation_customs/resources/documents/common/publications/studies/vat-gap.pdf

Further issues on household VAT contributions were explored by Collins and Turnbull in an NERI working paper late last year (see here). http://www.nerinstitute.net/research/estimating-the-direct-and-indirect-tax-contributions-of-households-in-ireland/

Posted in: Taxation

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