Ireland lost more than one billion Euro in VAT revenue in 2021, according to a new report.

Value-Added Tax (VAT) is applied to goods and services across the economy. It is a major source of income for the government.

Based on Ireland’s GDP, the European Commission looked at how much VAT should have been pouring into the treasury.

It has discovered a shortfall of €1.116 billion for Ireland.

By contrast, the Netherlands and Finland received almost exactly the right amount of tax.

2021 was an exceptional year. Due to covid, the government had applied special tax discounts.

“In 2021, several EU Member States introduced temporary changes to their VAT systems…Ireland had a temporary reduction in VAT that lasted until February 2021, after which it reverted to its normal rate…The reduction of the rate applicable to hospitality services – which has a large impact on the economy-wide effective VAT rate – was maintained during the entire fiscal year.”

The European Commission analysed economic data to “measure the difference between theoretically expected VAT revenues and the amount actually collected”.

It found discrepancies running into billions of Euro:

So where has that money gone?

The European Commission suggests “mainly to VAT fraud, evasion and avoidance, non-fraudulent bankruptcies, miscalculations and financial insolvencies.”

During the course of 2021, the EU economy began to rebound from the covid crisis

“In total, the EU-27 economy grew by 5.6 percent in real terms compared to 2020 – the largest increase in GDP was recorded in Ireland (15.1 percent), Croatia (13.1 percent), and Malta (11.7 percent).”

The report notes that Ireland has made headway in tackling its tax gap.

“The largest decreases in the size of the VAT compliance gap were observed in Italy (-10.7 pp),
Cyprus (-9.2 pp), Poland (-7.8 pp), Belgium (-6.7 pp), and Ireland (-6.0 pp).”

The European Commission suggests that the changing state of the economy may be helping to ensure the money which is owed to the government is actually paid:

“Changes in the structure of household consumption towards categories and channels where compliance is generally higher (e.g., online shopping) and the increased share of cashless payments” may be reasons why tax compliance has improved.

However €1.1 billion is still a considerable sum of money lost.

The European Economy Commissioner, Paolo Gentiloni, said in a statement that EU proposals should improve the situation in future. He is urging government to put better processes in place:

“‘VAT in the Digital Age‘ proposals…represent a real game-changer in terms of speeding up and facilitating tax authorities’ access to information on business-to-business transactions.

I call on Member States to come to a swift agreement on the new measures so we can further reduce VAT losses – especially those caused by cross-border criminal fraud.”