Latvia’s VAT gap shrinks

The European Commission (EC) has issued a report on the VAT gap (i.e. the difference between the forecast VAT revenue and the amount actually collected) in 2016. According to the EC study, the VAT gap shrank in most member states (including Latvia).

 

The VAT gap shrank to EUR 147.1 billion across the EU in 2016. As a percentage of the total VAT liability, it stood at 12.3% (down from 13.2% in 2015), the lowest level since 2012, when the EU began its VAT gap analysis.

 

Out of 28 member states, the VAT gap narrowed in 22 and widened in six (Romania, Finland, the UK, Ireland, Estonia, and France).

 

The VAT gap shrank the most – by more than five percentage points – in Bulgaria, Latvia, Cyprus, and the Netherlands.

 

The smallest VAT gaps were reported in Luxembourg (0.85%), Sweden (1.08%) and Croatia (1.15%). The largest were registered in Romania (35.88%), Greece (29.22%) and Italy (25.9%).

 

Overall, half of the member states had a VAT gap of below 9.9%.

 

Latvia

 

According to the EC study, Latvia’s VAT gap stood at 11%, slightly better than the UK and France. Latvia has seen its VAT gap shrink for four years in a row.

 

The methodology for measuring the VAT gap used by the Latvian State Revenue Service (SRS) takes a more critical approach to assessing certain components of potential consumption, and so the SRS’s current assessment is more pessimistic than the EC’s. The upside is that both studies show a reduction in the VAT gap for Latvia:

 

 

Lithuania’s VAT gap was 25%, one point down on 2015 and a three-point shrinkage since 2012.