Malta lost an estimated €287 million of VAT revenues in 2019, according to a VAT gap analysis by the European Commission.

The country’s VAT gap increase was the highest in the EU at 5.4 percentage points when compared to 2018.

In 2019, Romania recorded the highest national VAT gap with 34.9% of VAT revenues going missing, followed by Greece at 25.8% and Malta at 23.5 per cent.

The gap is calculated as the difference between VAT due and actual VAT revenues.

It is relevant to both the EU and individual countries since VAT makes an important contribution to both EU and national budgets.

Malta's VAT gap, as estimated by the European Commission.Malta's VAT gap, as estimated by the European Commission.

The overall VAT gap across the EU dropped from €141 billion in 2018 to €134 billion the following year.

The European Commission calculated that the maximum VAT revenue Malta could have recouped  in 2019 was €1,221 billion, while actual revenues stood at €934 million.

Malta’s VAT gap of €287 million represents revenues lost due to VAT fraud and evasion, VAT avoidance, bankruptcies, and financial insolvencies, as well as miscalculations and administrative errors.

Malta’s VAT gap has consistently hovered over the €200 million mark since 2015.

The estimated figure for 2018 quoted in last year’s VAT gap estimates was revised upwards from €164 million to €203 million.

Why is this relevant?

According to the European Commission, while some VAT revenue losses are impossible to avoid, decisive action and targeted policy responses could make a real difference, particularly when it comes to non-compliance.

Lost VAT revenues have an extremely negative impact on government spending in public goods and services upon which we all depend, such as schools, hospitals and transport.

The Commission said recouping missing VAT could also prove beneficial as member states strive to cover debt incurred during the initial recovery from the COVID-19 pandemic, or raise their climate financing ambitions.

Paolo Gentiloni, commissioner for the economy, said despite the positive trend registered in the last few years, the VAT gap remains a major concern, particularly in view of the immense investment needs EU countries must address in the coming years.

European Commissioner Paolo Gentiloni.European Commissioner Paolo Gentiloni.

“This year’s figures correspond to a loss of more than €4,000 per second. These are unacceptable losses for national budgets, and mean that ordinary people and businesses are left to pick up the shortfall through other taxes to pay for vital public services.

“We need to make a joint effort to crack down on VAT fraud, a serious crime that takes money out of consumers' pockets, undermines our welfare systems and depletes government coffers”, Gentiloni said.

Finance Minister Clyde Caruana vowed in September that the government would be clamping down hard on VAT evasion.

Before the global coronavirus hit Malta’s shores, VAT revenue accounted for around a fifth of all state revenue. 

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