The European Commission has recently published the 2016 EU VAT gap study, according to which Romania lost EUR 6.13 billion due to VAT gap (out of EUR 147.1 billion EU wide).
Annually, the European Commission monitors the VAT collection deficit (˝the VAT gap˝) recorded by the EU Member States, which is calculated as the difference between the VAT liability and the amount of VAT actually collected. The VAT gap covers VAT losses due to evasion, fraud, insolvency, bankruptcy, administrative errors and unlawful tax advantages.
The latest European Commission study analyzes 2016´s VAT gap. All 6 Central and Eastern Europe (CEE) countries, namely the Czech Republic, Estonia, Hungary, Poland, Romania and Slovakia, continued to confront with high VAT gaps, but Romania’s VAT gap was the highest of them all. Opposite Romania (35.88%) sits Estonia, with the lowest VAT gap (7%).
More concerning than the fact that Romania is the first in the highest VAT gap ranking is the fact that its 2016 VAT gap is higher that its 2015 one. Most Member States, though, recorded decreases of the same indicator, Bulgaria showing the best performance.
According to the same study, despite the fact that Romania´s standard VAT rate decreased in 2016 from 24% to 20%, VAT non-compliance increased, negatively contributing to its VAT gap. One can only wonder what Romania’s 2017 VAT gap would be, since last year its standard VAT rate additionally decreased, from 20% to 19%.
At EU level, there are six countries that registered VAT gaps higher in 2016 than in 2015 (i.e. Romania, Finland, Great Britain, Ireland, Estonia and France). Romania is the only country from Central and Eastern Europe (except for Baltic states) in this situation; this is why it is really important that Romania follow other states´ best practices in terms of the electronic interaction with the taxpayer. In this context, we remind you that, during the past years, some EU territories adopted various tax administration reforms and upgrades, such as real time reporting, mandatory e-invoicing or SAF-T, which led to lower VAT gaps.
If the National Agency for Fiscal Administration (ANAF) opted to implement modern VAT collection methods, this would create the premises of a normal framework and of the evolution of the VAT collection process, not only on short term, but also on the medium and long run, which is what both ANAF and honest taxpayers want.
EUR 6.13 billion is the amount of VAT that Romania did not collect to the state budget in 2016, according to the latest study on the VAT gap, launched by the European Commission. Since Romania was again last in the high EU VAT gap ranking, one can only wonder whether it will take the same initiatives as its neighbors with significantly lower VAT gaps.
In this context, we remind you that PwC launched at CEE level two unique VAT fraud detection tools. The two solutions, the VAT Fraud Tracker and FAIT, allow the monitoring of current and historical data in order to keep track of intra-Community trade with goods and to identify suppliers / customers susceptible to being involved in fraud.
Partner, Tax Services, Romania
Tel: +40 21 225 3681