Malta lost €241 million in VAT revenue in 2012, according to a study carried out by the EU.

This was revealed in the latest VAT Gap study published by the European Commission, which is defined as the difference between the expected VAT receipts if all the VAT which is due is collected and the actual VAT collected by member states.

The Maltese VAT Gap in 2012 stood at 31 per cent, placing Malta among the countries with a high VAT Gap in the 26 EU states surveyed, equalling €241 million lost. The percentage lost had been on the rise since 2005.

The VAT Gap in Malta saw a slight increase in 2012 from 2011, as a three per cent increase in VAT revenues was insufficient to keep pace with the strong increase of over six per cent in the VAT Total Tax Liability (an estimated amount of VAT that is, theoretically, collectable based on the VAT legislation), in line with the nominal growth of the economy.

This means that the government lost out on 31per cent of the tax it theoretically could have collected.

An estimated €177 billion in VAT revenues was lost due to non-compliance or non-collection in the 26 EU member states during 2012.This equates to 16 per cent of total expected VAT revenue of the member states.

The study is funded by the Commission as part of its work to reform the VAT system in Europe and clamp down on tax fraud and evasion. Tackling the VAT Gap requires a multi-pronged approach.

First, a tougher stance against evasion, and stronger enforcement at national level, are needed, the European Commission said.

Secondly, the simpler the system, the easier it is for taxpayers to comply with the rules. Therefore, the Commission has focused on making the VAT system easier for businesses across Europe.

Thirdly, member states need to modernise their VAT administrations in order to reduce the Vat Gap. For example, potential measures to improve procedures are addressed in the report on VAT collection and control procedures across member states within the context of EU own resources.

Finally, member states need to reform their national tax systems in a way that facilitates compliance, deters evasion and avoidance, and improves the efficiency of tax collection. The Commission has given clear guidance in this respect through country specific recommendations.