A taxing problem

There’s very little about the imposition of Value Added Tax on digital books that makes sense.

It’s a tax few seem to support but which no one is quite able to eliminate. It distinguishes between the same content on the basis that one is delivered electronically, and one isn’t.

It could generate upwards of £100m for the UK Exchequer, but doesn’t because Amazon, Nook and Kobo can easily evade paying it in the UK by locating their servers in Luxembourg. Two European countries—France and Luxembourg—have been referred to the European Court of Justice for breaking EU rules by imposing the lower rate on e-books, and yet no date has been set when these cases might be heard. The EU itself wants to harmonise the tax, meaning its court is being used to enforce a rule the executive no longer agrees with. The EU’s own vice-president backed a call in 2012 for the rate of VAT on e-books to be reduced. And in 2015 the way VAT is applied to electronic services changes, but the differential rates remain the same.

It’s a phantom tax that only serves to show how governments and, in this case, the European Union, are easily outpaced by digital. It’s a rogue tax that unwittingly benefits those companies that need this support least.

This week a discussion at the European Council will tackle the subject of tax: ahead of that meeting the creation of an “Expert Group on Taxation of the Digital Economy” is a welcome step forward. Based on these slim pickings, the Mail on Sunday reported that the EU had ordered “Britain to cut VAT from 20% to zero” on e-books.

Would it were so. Françoise Dubruille, director of the European and International Booksellers Federation, put it more cagily this week: “This could be one of the preliminary steps which might lead, in due time, to the formal proposal by the Commission to the Council of Ministers of Finance, to extend the possibility of applying a reduced VAT rate to e-books.”

This should be a clear win for the trade. We have fought long battles against the prospect of VAT being added to print books: the fear in extending that campaign to digital was that the UK government might feel obliged to abandon its special zero rate on print and harmonise at the lower rate, currently 5%.

That is a sizeable risk. But the logic is now unassailable: books come in multiple formats, consumers choose how they read them. Their reading choices should not be taxed.