Volume 28 (2019)

Volume 28 (2019) / Issue 4

Kyriaki Yiallourou, 'The Limitations of the VAT Gap Measurement' (2019) 28 EC Tax Review, Issue 4, pp. 196–210


This article presents a thorough overview of the VAT Gap measurement as an indicator of fraud. Recently, the measurement has received prime attention for its perceived correlation to the revenues lost due to fraud and its ability to help in the enactment of measures to eliminate it. The article aims at pointing out a so far unexplored limitation of this measurement, namely the absence of regional disparities. It is suggested that Small-Medium Enterprises (SMEs) located in rural areas can potentially be more prone to evade Value Added Tax (VAT), than those located in urban areas. Yet regional disparities are not taken into consideration, and do not influence, the VAT Gap measurement. It is argued that the lack of empirical data regarding regional disparities challenges the effectiveness of the measurement. This limits the possibility of having a wider understanding of VAT fraud tendencies and challenges the enactment of effective anti-fraud policy. It is nevertheless argued that, despite this limitation, consideration should be given to reforms that target SMEs within rural settings, such as increasing the levels of audits and enhancing tax morale.

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ISSN: 0928-2750
ID: ECTA2019023