M42 - AuditingReturn

VAT is one of the most important sources of the public revenues in the EU Member States; therefore, it is crucial to determine the factors of VAT collection. So far, only a few researchers analyzed the influence of individual economic sectors on the indicators of VAT collection, namely Compliance and Policy gaps. Therefore, the authors used the autoregressive distributed lag (ARDL) and Error Correction (EC) models to study the relationship between eleven economic sectors, the VAT Compliance Gap and the VAT Policy Gap, which were selected as the dependent variables. The research focused on twenty-five EU member states, and the examined time period was from 2005 to 2020. The results showed that the Compliance Gap is affected increasingly by the Construction and Arts sectors and decreasingly by the Agriculture and Manufacturing sectors. The Policy Gap was increasingly affected by the Real Estate, Public Administration, and Financial Services sectors. These findings established which economic sectors should receive 'special attention' from tax administrations in the EU countries to tackle tax evasion, and which are the most critical in making strategic decisions regarding tax legislation.