Malta’s VAT Gap One of the Lowest in the EU

A recent study by the EU shows that Malta has one of the lowest VAT gaps in the EU, proportionately speaking, as a percentage of Gross Domestic Product (GDP). The VAT gap is the difference between the expected VAT revenue and VAT actually collected by national authorities.

The study says that “while non-compliance is certainly an important contributor to this revenue shortfall, the VAT gap is not only due to fraud. Unpaid VAT also results from bankruptcies and insolvencies, statistical errors, delayed payments and legal avoidance, amongst other things.”

The study estimates that Malta lost potential revenue of €21 million in 2011, which amounts to 0.3% of GDP. This is a significant improvement on previous figures as between 2000-2011 the VAT gap amounted to 1% of GDP.

Algirdas Šemeta, the EU commissioner for taxation, said that “the amount of VAT that is slipping through the net is unacceptable; particularly given the impact such sums could have in bolstering public finances. However, there is also a positive message to be drawn from today’s findings.

“Our ambitious reform of the VAT system, the EU measures to combat tax evasion and our recommendations for national tax reforms, are all targeted in the right direction. We know the problem; we have identified solutions to it, and now it’s time for member states to act. Today’s figures will serve as a baseline to assess their progress in improving VAT compliance in the years ahead.” The study points out that member states need to reform their national tax system in a way that facilitates compliance, deters evasions and avoidance, and improves the efficiency of tax collection.