How are penalties for VAT errors calculated?

The penalties for VAT errors are primarily calculated as a percentage of the lost revenue. This approach takes into account the financial impact of the error on the government's revenue, which is crucial for maintaining fairness and accountability in the tax system. When a business inaccurately reports VAT, it affects the total amount of tax collected by the authorities. Therefore, calculating the penalty as a percentage of the lost revenue reflects the seriousness of the error and serves as a deterrent against future inaccuracies.

This method ensures that companies are not disproportionately penalized based on arbitrary structures but rather aligned with the actual financial implications of their mistakes. As businesses may exhibit varying levels of turnover, linking penalties to lost revenue serves as a fair basis for calculating the consequences of VAT reporting errors.