EU Policy Watch

EU VAT Policy Gap: Why Policy Choices Affect Fiscal Revenue More Than Compliance

The European Commission has long focused on VAT compliance issues, but the latest research from the Tax Foundation shows that the real revenue losses come from policy choices: the "actionable policy gap" caused by rate reductions and exemptions reached €773.5 billion in 2024, equivalent to 27.1% of potential VAT revenue. Eliminating these inefficient policies would not only increase member state tax revenue but could also reduce standard VAT rates by an average of 5.7 percentage points. This article analyzes the composition of this gap, country differences, and reform paths.

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Julian Sterling3 min read

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