Want another prediction for 2012? Value added tax on e-books will come down. It has to.
At the moment VAT at the highest rate 20% is paid on e-books sold in the UK, though print books are exempt, and have been for decades. It is becoming increasingly plain that this is both damaging and absurd. The situation is not dissimilar in other parts of the EU, and indeed across the world, where p and e are taxed at different rates.
Labour MP Tom Blenkinsop appears to have noticed, and this week asked the Chancellor of the Exchequer whether his department planned to introduce a zero rate of value added tax on e-books. The response from Tory MP David Gauke (exchequer secretary) was technically correct, while also being totally unhelpful. He said: "Under EU law, VAT on electronic books must be charged at the standard rate. Existing agreements with our EU partners do not allow the UK or other member states to introduce a new zero-rate or extend an existing one to relieve e-books from VAT and they specifically exclude electronically supplied services, which includes e-books, from a reduced rate."
I wonder if Gauke has noticed the recent news reported in The Bookseller and elsewhere that France intends to normalise its VAT rates on 'books' so that both P and E attract the lower rate which next year is to be set at 7%. The French government is doing precisely what the UK government says it cannot do, defy Brussels (yes, I do notice the irony). Furthermore, the French government has told its publishers that even if the EU does impose a fine, then it will pay it on their behalf (vive la France, anyone). Luxembourg has also now issued guidance that provides for the application of what it calls the “super-reduced 3% VAT rate” on electronic books beginning in 2012. Before that the super-reduced VAT rate only applied to paper books, whereas e-books were taxed at the standard 15% VAT rate.
[The Luxembourg move has wider significance of course, since Amazon is located there, and goods are taxed at the place of origin, not where the customer resides. It is not clear if Amazon sells e-books from Luxembourg into the UK, but it seems likely that it will looking hard at the case, though any advantage will be short-lived as there is already agreement that this will be changed to a destination-based system.]
So why the UK intransigence? If he was really awake the Tory MP for South West Hertfordshire might also have paid attention to a recent memo published by the EU that sought to clarify how VAT needed to be modified in member states following a consultation with those countries. The EU specifically stated that the review should take as a principle that "similar goods and services should be subject to the same VAT rate and progress in technology should be taken into account in this respect, so that the challenge of convergence between the on-line and the physical environment is addressed”. French Culture Minister Frédérique Mitterrand has already welcomed the communication and said in a statement that he applauded the comment in the 16-page document on fiscal neutrality.
It seems unlikely under these conditions that either France or Luxembourg will face particularly onerous fines, so if the UK fails to act we can read that as a decision made by the UK government.
Blenkinsop is now to go back to parliament to ask a follow-up question following the information that I passed to him earlier this week. For its part the Publishers Association is also keeping a watching brief on the situation. Chief executive Richard Mollet told me that it was "monitoring political developments in the EU and other member states very closely".
This is important. Twenty-percent of £150m is not so much, but 20% of £500m is a tasty sum that could be used to support internal investment, pass on to retailers or authors, or help with the continuing restructuring of the book business. Either way, it makes sense for the UK government to get behind one of the fastest growing sectors in one of its most vibrant industry sectors at a time when the general economy is in the mire.
Of course these things may not run in a straight line or a particularly fast one. The commission will launch the assessment in 2012 and will subsequently make proposals by the end of 2013. It will also take a cool hard look at those goods and services which currently enjoy exemptions, such as print books. It says: “However, as the market and nature of many of the services have evolved, the justification for certain exemptions have become questionable.” Gulp!
As I said earlier this year the normalisation of VAT at a reduced rate might be a palatable gain for the publishing business, even though clearly a full exemption remains the desired choice of many. Either way, 20% cannot be allowed to hold for much longer.
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