What is the VAT Gap?

The VAT Gap in Europe represents the shortfall between the expected VAT revenue and the actual revenue collected. It comprises of two significant components: the VAT Compliance Gap and the VAT Policy Gap.
The VAT Compliance Gap denotes the portion of VAT revenue lost due to non-compliance, such as evasion, fraud, or errors in reporting.
The VAT Policy Gap reflects differences arising from policy measures, exemptions, or reduced rates that lead to revenue losses.