VAT Gap in the Czech Republic and Slovak Republic

This paper describes the term VAT (Value-Added Tax) gap and the method used to estimate it in the Czech Republic (CR). The focus is drawn to calculating the theoretical VAT liability from the input-output tables which are a part of National Accounts. The method used by the Czech Statistical Office in the process of computing the weighted average VAT rate (model WAR) for the purpose of the CR contribution to the EU budget is used for the calculation of the theoretical VAT in the CR. The calculations of the VAT gap in the years 2002 to 2010 done by the method WAR are compared to the results published in the Slovak Republic (SR). The VAT Gap in the CR reaches on average approximately 17%, but it has been steadily increasing up to 26% in 2010. In the SR the VAT gap is higher, in average 25.5% and is also growing.