The Role of The Supreme Audit Institutions in Counteracting VAT Gap in the European States. A Cross-Country Comparative Study

The Role of The Supreme Audit Institutions in Counteracting VAT Gap in the European States. A Cross-Country Comparative Study

The Value Added Tax (VAT) gap is enormously dangerous in all European Union Member States. These countries are losing revenues due to tax fraud and inadequate tax collection systems. The VAT gap, understood as the difference between expected VAT revenues and VAT collected, is caused by tax fraud, tax evasion, bankruptcies, financial insolvencies, or miscalculations (the European Commission, 2021; Center For Social and Economic Research, 2022). This issue is crucial for properly functioning the macrostructure – the state. The reduction of tax incomes may reduce the scope of public tasks. However, one should consider tax fraud's negative influence much wider. An ineffective tax collection system shows the limited potential of the state (Fukuyama, 2014). It, in turn, affects the erosion of public trust - a necessary component of social capital, without which it is difficult to achieve a competitive advantage. Considering the role of supreme audit institutions (SAIs) in ensuring the proper functioning of the public sector, one needs to determine the SAIs' role in combating VAT fraud, which is part of a broader phenomenon - tax fraud.

In all EU Member States, supreme audit institutions (SAIs) are subordinate to parliaments. They are not part of the executive branch of the State (European Court of Auditors, 2019). Such an SAI's position in the State structure and broadest audit rights should enable SAI to play a crucial role in VAT fraud prevention.

Little is known about SAI's role in VAT fraud prevention. The research aims to eliminate this research gap. The study does not discuss the main types of VAT fraud. Equally, there is no attempt to summarise the main features of these respective fraudulent schemes. This preliminary study focuses on SAIs - public organisations and how they fulfil their public tasks. Therefore, the study intends to resolve the following research question  - RQ1: how do SAIs deal with the VAT gap issues?

To resolve the research problem, one first explored the literature on SAIs. Subsequently, one examines SAI's activity to reduce the VAT gap through an analysis of SAI documents published by SAIs on their Webpages. Finally, one presents and discusses the findings, derives directions to advance the research further, and provides practical tips for SAIs activities, which may increase their influence on the public sector and improve its activities.

DOI: 10.33141/po.2022.09.02