Value-added taxes (VAT) make up approximately one-fifth of total tax revenues in Europe. However, European countries differ significantly in how efficiently they raise VAT revenues. One way to measure a country’s VAT efficiency is the VAT Gap. This measure looks at the difference between VAT revenue actually collected and collectable VAT revenue under an ideal VAT that applied at the standard rate on all final consumption. The difference in actual and potential VAT revenues is due to 1) lacking VAT compliance (the “compliance gap”), and 2) policy choices to exempt certain goods and services from VAT or tax them at a reduced rate (the “policy gap”).
Source Tax Foundation
