VAT Fraud and Evasion: What Do We Know, and What Can be Done?
IMF Working Papers, February 1, 2007
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- VAT Fraud and Evasion: What Do We Know, and What Can be Done?
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Bibliographic details
- Authors: Stephen C. Smith, Michael Keen
- Published: February 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865950.001
Summary
- Like any tax, the VAT is vulnerable to evasion and fraud.
- The VAT credit and refund mechanism offers unique opportunities for abuse, and this has recently become an urgent concern in the European Union (EU).
- This paper describes the main forms of noncompliance distinctive to a VAT, considers how they can be addressed, and assesses evidence on their extent in high-income countries.
- While the practical significance of current difficulties in the EU should not be over-stated, administrative measures alone may prove insufficient to deal with them, and a fundamental redesign of the VAT treatment of intra-community trade required.
- The current difficulties in the EU largely reflect circumstances that would not apply in the United States.
Main forms of VAT noncompliance discussed
- Noncompliance distinctive to a VAT stemming from the credit and refund mechanism.
- Specific avenues for abuse tied to intra-community trade within the EU.
- Tax evasion and fraud enabled through manipulation of the VAT chain (implied by keywords such as "firm B", "firm D", "VAT chain", "input VAT", "VAT accounts system", "VAT due", "VAT fraud").
Evidence on extent in high-income countries
- The paper assesses evidence on the extent of VAT noncompliance in high-income countries.
- References and indicators highlighted in the source include: "evasion rate", "VAT gap", "VAT noncompliance", "United Kingdom VAT gap", "VAT revenue", and "VAT productivity".
Policy analysis and recommendations
- Administrative measures alone may prove insufficient to address VAT-specific abuses.
- A fundamental redesign of the VAT treatment of intra-community trade is required to deal with the particular problems observed in the EU.
- Observations that the EU circumstances prompting redesign would not apply in the United States, implying differing policy priorities by jurisdiction.
Metadata and topical focus (as presented)
- Subject: Consumption taxes, Exports, Income and capital gains taxes, International trade, Revenue administration, Tax fraud, Taxes, Value-added tax
- Keywords: audit, compliance, Consumption taxes, enforcement, Europe, evasion rate, Exports, firm B, firm D, Income and capital gains taxes, input VAT, noncompliance, registration threshold, sales tax, Tax fraud, unit price, United Kingdom VAT gap, value-added tax, VAT accounts system, VAT administration, VAT chain, VAT due, VAT fraud, VAT gap, VAT noncompliance, VAT productivity, VAT revenue, WP
Authors: Stephen C. Smith, Michael Keen. Publication date: February 1, 2007. Pages: 33. Series: Working Paper No. 2007/031. Issue: 031. Volume: 2007. DOI: https://doi.org/10.5089/9781451865950.001. ISBN: 9781451865950. ISSN: 1018-5941.