A retrospective evaluation of the elements of the VAT system: executive summary

This is the Executive Summary of an evaluation for the European Commission of the consequences, in economic terms, of the functioning of the most pertinent elements of the current EU VAT system.

The Executive Summary contains the main findings of the full report. Exemptions are found to be a particularly problematic feature of the existing VAT system, distorting firm's decisions, reducing the international competitiveness of EU industries, and costing significant amounts of revenue. A proliferation of reduced and even zero VAT rates is also problematic, increasing complexity and administration and compliance costs, despite being poorly suited for the tasks to which they are put, such as redistributing from rich to poor. A complex VAT system is also found to cause difficulties for firms wanting to trade across borders, and means compliance is costly, particularly for smaller firms.