The VAT gap in Poland in 2024, according to this year's European Commission estimates, amounted to 10.9%, and was lower than that in 2023 of 16%. — notes the Polish Economic Institute. According to PIE, in 2023 the VAT gap in the EU amounted to 9.5%. potential revenues from this tax.
“The VAT gap in Poland began to narrow again. The European Commission report states that after a significant increase to 16.0 percent in 2023 (from 11.2 percent in 2022), the VAT gap in Poland decreased to 10.9 percent in 2024 – according to a flash estimate” – indicated in the “PIE Weekly”, a publication of the Polish Economic Institute.
The authors of the study assessed that the increase in the VAT gap in 2023 was strongly related to the economic situation. That year, real GDP growth in Poland slowed down to 0.2 percent, i.e. by 5.0 percentage points. less than a year earlier, and real household consumption fell to -0.3%. Moreover, the share of services in the economy increased to 64.4 percent, while this sector, according to the EC report, “is characterized by a relatively higher risk of tax non-compliance”. The number of company bankruptcies has also increased, which worsens the collection of tax liabilities.
“Poland was no exception in the context of the European Union. In 2023, the VAT gap in the EU increased to EUR 128 billion, or 9.5%. potential inflows, which means a deterioration y/y of 1.6 percentage points. The median VAT gap in member states increased from 7.3%. to 8.2 percent,” noted PIE.
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“The EU map shows large differences between countries in 2023. The lowest VAT gaps are observed in Austria (1%), Finland (3%) and Cyprus (3.3%), and the highest in Romania (30%) and Malta (24.2%). On the side of y/y changes, the strongest increases affected Ireland (+6 percentage points), Estonia (+5.1 percentage points), Hungary (+5 percentage points) and Poland (+4.8 percentage points). Significant improvement was recorded in Croatia (-3.7 percentage points), Slovenia (-3.5 percentage points) and Cyprus (-3 percentage points),” the Institute added.
These factors helped reduce the VAT gap
The analysis assessed that the data for 2024 suggest an improvement in the conditions for VAT collection in Poland. The factors that influenced this included: the number of bankruptcies decreased by 3.2%, which reduced losses resulting from taxpayers' insolvency.
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“In parallel the so-called decreases political gap, i.e. part of the VAT loss resulting from decisions on rates and exemptions. In Poland VAT policy gap decreased from 53.6 percent in 2022 to 50.8 percent in 2023 and 49.8 percent in 2024, which is one of the largest declines in the EU,” wrote the PIE publication.
“Both cyclical and systemic factors are behind the improvement. The authors of the EC report suggest that the results for 2024 may reflect both economic stabilization and the maturation of changes implemented in recent years in the tax administration and towards taxpayers,” the Institute added in the weekly.
