- The VAT gap is the difference between expected and actual VAT revenue, caused by policy choices (exemptions, reduced rates) and compliance issues (fraud, evasion, errors).
- It is measured using top-down (macroeconomic data) and bottom-up (micro-level audits) approaches.
- A large VAT gap indicates low compliance and often leads to stricter regulations and digital reforms like the EU’s ViDA initiative.
- The VAT gap affects government budgets, economic policy, and fair competition among businesses.
Source: vatabout.com
Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.
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