- The EU’s “actionable policy gap” in VAT, representing revenue lost due to reduced rates and certain exemptions, was €773.5 billion in 2024, six times larger than the compliance gap, highlighting that policy choices are a major cause of lost VAT revenue.
- Closing this actionable policy gap could either increase EU countries’ VAT revenues by over one-third or allow for an average reduction of the standard VAT rate by 5.7 percentage points to 15.4%.
- Eliminating reduced rates and exemptions would simplify the tax system, reduce compliance costs, and create a more neutral tax code, while more targeted measures like tax credits could address equity concerns more effectively than current VAT policies.
Source Tax Foundation
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