EU loses 200 billion euros per year because of tax fraud

EUROPEAN UNION loses about 200 billion euros in tax revenues annually due to fraud and error, according to the European Commission.

“The amount of value added tax (VAT) that is lost is unacceptable, especially since the impact of that money would strengthen public finances,” said EU Commissioner for Tax Policy Algirdas Šemeta.

According to research by the European Commission, which includes 26 of the current 28 EU member states, 193 billion euros was not accounted for by tax authorities back in the 2011.

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Losses were greatest in the largest and richest economies: 36.1 billion in Italy, 32 billion in France and 27 billion in Germany.

However, as a percentage of gross domestic income, the difference between the expected VAT and actual collected VAT was greatest in poor countries in Eastern Europe. This amount was eight percent in Romania and 4.5 percent in Greece. By comparison, the rate in Germany was about one percent of GDP (gross domestic product).

Burdened with debt problems, governments are turning to raising VAT as a way to increase public revenues. EU bureaucracy itself is partly financed by the VAT collected at the national level, so that lost revenue in the member states mean less money for Brussels.

The Commission report states that the biggest reason for loss is tax fraud, which accounted for about two-thirds of the lost revenue. Late payment, bankruptcy and administrative errors also play a significant role, as well as economic conditions, since there is a link between rising unemployment and widening gap between expected and actual revenue from VAT.