Study on VAT and excise losses (2007-2009)

Reckon carried out a study for DG Taxation and Customs Union of the European Commission to quantify the extent of VAT and excise duty losses in each Member State of the EU. There were 25 Member States in the EU at the start of the study.

The main focus of the work was on developing estimates of VAT losses in each Member State using macroeconomic data. VAT losses are the difference between the net VAT that ought to have been remitted — the net theoretical VAT liability — and accrued VAT receipts.

We developed our own estimates of the net theoretical VAT liability by combining information on the value of intermediate and final consumption in different sectors of the economy, with the VAT treatment that would apply to that activity.

This work required a thorough understanding of published National Accounts data, including data on final consumption expenditure, intermediate consumption and gross capital formation.

We conducted an in-depth study of the EC VAT directive and of the relevant VAT legislation of Member States. The work needed a good understanding of the VAT system, rates, exemptions and refunds, including their application to public bodies, in the UK and across the EU.

As part of the work, we carried out an econometric analysis to identify factors that are associated with the extent of losses in each Member State.

We also developed estimates of losses associated with excise duties on alcohol, tobacco and road fuel. We did so by using data from consumption surveys and industry sources to compute estimates of theoretical excise duty liability on alcohol, tobacco and road fuel for each of the EU Member States.

We have presented the results of our work relating to VAT at two EU-wide working groups. Our report on VAT (PDF, 109 pages) was published by the European Commission in 2009.

*Pedro Fernandes

Reckon LLP31 Southampton Row, London, WC1B notices
Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.