VAT Efficiency—A Discussion on the VAT System in the European Union

Abstract

The effectiveness of the tax system can be analysed in various ways. According to the authors one of manifestations of such effectiveness is resistance to tax evasion. This phenomenon is influenced by multiple factors, with few being the level of VAT rates and the number of rates in force in the country concerned. The aim of the considerations is therefore to analyse how the standard VAT rate as well as the number of rates affect the effectiveness of this tax. The research was based on a literature query in the field of value added tax in the European Union. In addition, the problem of tax evasion was indicated and the aggregated data on the size of the tax gap in the Member States were presented. Then, there are the results of the research for 27 European Union countries for 2011–2019. The efficiency of VAT collection was modelled using square function, determining the significance of the parameters of this function, as well as the value of abscissa, which made it possible to group the countries based on how they maintained the efficiency of VAT collection over the analysed period of time. The final part of the study concentrates on the relationship between the efficiency of tax collection and the amount of both the basic rate and the number of rates. The conclusions of the research are as follows: a tax system with a small number of reduced rates, and preferably with one relatively low standard rate, is the system least susceptible to tax fraud. The research also shows a positive correlation between the value of the basic VAT rate along with the number of preferential rates and the scale of the tax gap, i.e., in countries with a higher standard VAT rate and a greater number of preferential rates, the tax gap is greater. The study will enable further investigation into the strategy of determining the optimal VAT rate and the process of its unification. Proposed changes may contribute to increasing the efficiency of VAT administration in EU countries, reducing the shadow economy, tax fraud and positively influencing economic growth.

Tax evasion in the EU countries following a predictive analysis and a forecast model for Slovakia

“…Our findings are not comparable with the study provided recently by Kowal and Przekota (2021), which, although it classified the EU countries similarly into 6 categories, it did so according to the VAT gap reduction trend in the past period. The research study provided by Kasnauskienė and Krimisieraitė (2015) was also realised only in the case of an individual country Lithuania.…”

“…The results showed that tax gaps in the EU member states have been growing every year. Other recent research of tax evasion and the tax gap in the EU countries for the period between 2011 and 2019 were realized recently by Kowal and Przekota (2021). The efficiency of VAT collection in the EU countries was modelled using a square function, determining the significance of the parameters of this function.…”

Analytical View on the Sustainable Development of Tax and Customs Administration in the Context of Selected Groups of the Population of the Slovak Republic

“…Noting the negative impact of VAT fraud, certain researchers conclude that this illegal activity creates some of the most dangerous consequences for an economy [14,15] and proclaim that such activity can be implicated in the direct or indirect financing of terrorism [16]. The most important instrument for combatting VAT fraud is the development of international cooperation [17] and use of modern technologies [18].…”

“…A number of studies indicate that transformations in the field of taxation, including international taxation, ensure a sustainable development trend [23,24]. Kowal [18] highlighted the demonstrated efficiencies of a tax system through the degree of resistance that system poses to tax evasion.…”

Formation of a Sustainable Mechanism of Preferential VAT Taxation of Exports as Evidenced by the Russian Federation Practice

“…In particular, a team of authors analyzed the factors defining the parameters of VAT gap in an economy and concluded that three key categories of actors-final consumers, sellers, and the tax administration-must ensure the good-faith fulfillment of their duties (Poniatowski et al 2020). Noting the negative impact of VAT fraud, certain researchers concluded that this illegal activity creates some of the most dangerous consequences for an economy (Fjeldstad et al 2020;Pouwels 2021), and also concluded that such activity could be implicated in direct or indirect financing of terrorism (Frunza 2018); the most important instrument for combatting VAT fraud is the development of international cooperation (Ding et al 2021) and use of modern technologies (Kowal and Przekota 2021).…”