Academic journal article UTMS Journal of Economics

Value-Added Tax and Its Efficiency: Eu–28 and Turkey

Academic journal article UTMS Journal of Economics

Value-Added Tax and Its Efficiency: Eu–28 and Turkey

Article excerpt

(ProQuest: ... denotes formulae omitted.)


Every state budget contains government revenues and expenditure. Its primary mission is to finance public goods and services, and it affects the economic development of a country. One part of government revenues are tax revenues, which are divided into three main categories. These are direct taxes, indirect taxes and social contributions. Value-added tax is a tax that pertains to the category of indirect taxes. As such, VAT is a central platform of policy at both the EU and international levels. The tax systems of each of the EU-28 Member States and Turkey are extremely important for the government, multinational companies and individuals. Therefore, the tax system needs to be adjusted to the conditions and relationships within a government. The main elements that determine the tax system are constitutional order, territorial size, population size, demographic structure, size of the public sector, economic structure, unemployment, public debt size, etc. Every country has specific characteristics of a functioning tax system. Economic cooperation among the EU-28 Member States and Turkey is nowadays widespread and continuously increasing. The main problem is the diversity of tax and legal regulations and legislation in each country. To remove all the obstacles, every EU-28 Member State must improve its tax system. The biggest improvement is achieved in the area of value-added tax. Although Turkey is not an EU Member State, the implementation of VAT has been triggered by agreements with the European Community. With the aim of convergence of its tax law with European laws, Turkey introduced VAT by means of Law No. 3065 in 1985.

Value-added tax is a common system of sales taxation in every EU-28 Member State according to the EU Council Directive 2006/112/EC. The year 1967 was a crucial year for the establishment of VAT. Special merit for creating European VAT is owed to the Neumark Commission. The main task of this Commission was to move away from using gross value-added tax and to implement net value-added tax under the destination principle. The harmonization of VAT is carried out in three steps. The first step is individual countries' attempts to implement VAT, the second step is the harmonization of the VAT tax base and then, as the third step, countries determine the number of different value-added tax rates. It is important to mention here that, because of the adaption aim as well as the convergence of Turkish law with European law and its membership candidacy, this VAT harmonization progress is also relevant for and impacts Turkey. Moreover, Turkey's VAT adaption progress has been evaluated annually by the European Commission since 1998 (European Commission 1998). Therefore, we integrate this relationship with Turkey into our study with respect to EU Member States.

The main objective of this paper is to provide a VAT efficiency analysis in the EU-28 Member States and Turkey by using standard VAT efficiency indicators for the period from 2009 to 2013. The paper is structured in the following way. In order to achieve the objective of this paper, the introduction is followed by a description of the main characteristics of VAT and the recent policy initiative for a single EU VAT area. In the second section, data and methodology are presented. The third section presents the results of the VAT efficiency analysis in the EU-28 Member States and Turkey, while the last section provides a conclusion.


VAT is a tax levied on goods and services purchased by end users. It depends on the price elasticity of the taxed goods and services. For example, when the price elasticity is high, it means that even small price hikes slash demand significantly. VAT is guided by traditional principles of fiscal policy, which include neutrality, efficiency, certainty and simplicity, effectiveness and fairness, as well as flexibility. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.