Being essentially a consumption tax, and with national statistics for consumption available, it should be possible to reconcile the actual VAT collected with the total theoretical VAT liability. Or so the EU Commission thinks, with a new study published this week which seeks to identify if VAT is overpaid or underpaid in EU Member States. It seems it's generally underpaid. By a lot.

The Commission has worked out that as a whole; EU Member States only collect 88% of what they might collect in VAT. The shortfall is quite large, at €107bn for 2006. While the Commission is at pains to point out that the shortfalls aren't all due to fraud – legal avoidance and unpaid VAT liability due to insolvencies are also in part the reason – it is equally at pains to point out that some countries perform much better than others in their VAT collection duties.

Luxembourg does well, with a 1% VAT Gap, and Ireland manages a VAT Gap of a mere 2% or €241m in 2006. Countries that are large (Germany) or warm (Greece) or both (Italy) fare much worse, with deficits from the ideal total of 10% or more. Spain deserves an honourable mention for bucking this trend with a VAT gap equivalent to Ireland in percentage terms. The UK's percentage gap at 17% is by no means the highest, but the study suggests it suffers the greatest loss in absolute terms at close to €27bn.

Further details are to be found at
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