Republic of Estonia: Technical Assistance Report-Revenue Administration Gap Analysis Program-The Value-Added Tax Gap

EXECUTIVE SUMMARYThis report presents the results of applying the Revenue Administration Gap Analysis Program VAT gap estimation methodology to Estonia for the period 2007–12. The methodology employs a top-down approach for estimating the potential VAT base, using statistical data on value-added generated in each sector. There are two main components to this methodology for estimating the VAT compliance gap: 1) estimate the potential net VAT collections for a given period, and2) determine the accrued net VAT collections for that period. The difference between the two values is the compliance gap.The Estonian Tax and Customs Board have been estimating their VAT and other tax compliance gaps since 2004. These estimates and associated compliance and risk analysis, all produced by the ETCB Intelligence Department, are used to set strategic priorities and identify risks and potential targets for tactical operations.Between 2009 and 2012, VAT receipts failed to keep pace with nominal GDP and final consumption growth, due to a growing compliance gap. This is observed in VAT compliance gap estimates produced by RA-GAP, Center for Social and Economic Research (CASE),1 and the ETCB. In particular, over the period 2008–11, the VAT compliance gap almost doubled and losses increased by over €150 million (Figure 1).1 "Study to quantify and analyse the VAT Gap in the EU-27 Member States" Final Report TAXUD/2012/DE/316 for the European Commission, TAXUD, by CASE – Center for Social and Economic Research (Project leader) and CPBs Bureau for Economic Policy Analysis (Consortium leader).