Development of Recent VAT Revenues and Anticipated Fiscal Effects of Reform Proposals for VAT System

Unlike the expected 2.5 billion € growth, Germany’s current VAT revenue decreased by approximately 2 billion € and reached ca. 139 billion € in 2001. In the beginning this study empirically examines the possible causes of a weak development of the VAT revenue using the national accounts data. In particular the influence of VAT evasion and especially the rapid growth of the so-called (tax-avoiding) carousel fraud within the EU are tackled. Furthermore, changes in legal frameworks, the increased number of business failures and/or the considerable sum of back payments for the previous heating period could have had certain effects on the VAT revenue level in 2001. In the second part of the study three recommendations (“Mittler-model”, “Reverse-charge-model with the input tax clearing” and “Reverse-charge-model with the jointly and severally liable debtors”) for amending VAT system to solve problems related to the carousel fraud are discussed. In addition the financial implications of an introduction of each of the recommended models are analysed. All in all the Mittler-model plays the central role in the study. In the last part of the study the results are summarised and political recommendations are given. Furthermore the extent of VAT evasion in some selected European countries is compared in an appendix.