Amazon hints at e-book price hike on Jan 1st

Amazon hints at e-book price hike on Jan 1st

Amazon has warned that e-book prices will rise come January following a change in VAT law in an email to self-published authors. On 1st January Amazon will “make a one-time adjustment to convert VAT-exclusive list prices provided to us to VAT-inclusive list prices” resulting in a rise in the list price of thousands of e-books.

From 2015, VAT will be charged at the rate where the customer resides, rather than where the servers are based, meaning e-books bought by UK readers will be charged a rate of 20%, as opposed to the 3% levied by Luxembourg, where Amazon is based. The Kindle Direct Publishing team has contacted authors published on its KDP platform explaining that when the new law comes in on 1st January, Amazon will make a one-off adjustment to the prices of e-books already published, increasing, for example, a £5.00 list price of a book to £6.00 to account for the 20% VAT rate.

The one-off price-change example implies e-book prices will rise when the law comes into effect in January. In the run-up to the change, there continues to be speculation about how retailers and publishers will handle the change, with some tax experts warning that price hikes were inevitable.

Amazon told authors: “Starting January 1st, for any titles already published in KDP, we will make a one-time adjustment to convert VAT-exclusive list prices provided to us to VAT-inclusive list prices.  Subject to minimum and maximum thresholds, we will add the applicable VAT based on the primary country of the marketplace to the VAT-exclusive list price provided.  For example, if an author had previously set £5.00 as the VAT-exclusive list price for amazon.co.uk, the new VAT-inclusive list price will be £6.00 because the applicable VAT rate in the UK is 20%.”

The company seems to imply that the list price of a book will rise or fall depending on the different VAT rates charged in different countries around Europe. The email said: “For example, if an author had previously provided a €6.00 VAT-exclusive list price for amazon.de (Germany), amazon.fr (France), amazon.es (Spain), and amazon.it (Italy) Kindle stores, the list prices including VAT will be €7.14 (19% VAT), €6.33 (5.5% VAT), €7.26 (21% VAT), and €7.32 (22% VAT) respectively.

Amazon has also explained that e-book royalties would be calculated on the list price of a book minus VAT. And following the new law, minimum and maximum list prices for the 35% and 70% royalty plans on KDP will change to also include VAT. However, the retailer assured   authors that titles scheduled to run in the Kindle Countdown Deal in the UK marketplace during or after 1st January would still be eligible to finish that promotion, even if the list price does not fit the new requirements of being priced between £1.99 and £15.99, including the VAT. The company said: “We think that respecting your VAT-exclusive list prices and keeping books in their chosen royalty plans offers the best experience for authors.”

Amazon has previously encouraged authors to keep list prices in line with what they were previously, with a note on its website saying: "Before January 1, 2015, to set a list price of £1.99, you had to enter £1.93 to ensure that your list price would be £1.99 once 3% VAT was applied. Now, you can simply enter £1.99, and your list price includes VAT.” However, that would means authors receive less royalty where VAT rates are higher than 3%.

Other retailers have been less clear about what will happen to prices. A Kobo spokesperson said:  “We will continue to work closely with our publisher partners, both agency and wholesale, to bring our customers the best possible offering.” Nook did not want to make a comment about what would happen to prices.

Authors have expressed concern that the move would either impact their royalties, or, if prices rise, sales. Mark Edwards, author of several books including Because She Loves me (Thomas & Mercer), currently at Number 2 in the Kindle Chart, said he was concerned about the new VAT law’s impact. He said: “My concern as an author is that the amount of royalties we earn is going to decrease unless the price of e-books go up. But if that happens, sales might decrease. My feeling is that prices won’t go up, so authors will lose out on royalties.” He added: “Nobody wants e-book prices to rise because this could harm sales and discourage readers. It’s hard enough to make a living as an author and it’s going to be even harder now that more of the money readers spend on e-books will go to the government and less to the people who write, publish and sell them.”

In October HarperCollins told The Bookseller they would do “everything we can” to minimise the impact on consumers while protecting authors’ royalties when the new law comes in in January.

At the time, Richard Asquith, vice-president of global tax at online accounting service Avalara, said he expected retailers to adopt the “Ryanair-style” model of adding VAT at the till. He said: “Companies are getting much better at protecting their margins. If they don’t increase prices on 1st January they will do it soon [after]. Otherwise it’s a huge dent in their business model. It’s inevitable that it will come.”

There has also been wide-spread concern that smaller UK e-booksellers, publishers, and authors could face an administrative nightmare managing the different VAT rates across the EU. The government has set up a VAT Mini One Stop Shop (MOSS), which allow companies to make quarterly VAT declarations, with the tax then distributed at the correct VAT rate to the appropriate countries. But this requires small traders to keep accurate records of where customers reside, and means they will have to register for VAT in this country even though sellers earning less than £80,000 per annum were previously exempt from having to register.

Kerry Wilkinson, who started out as the KDP author before being snapped up by Pan Macmillan, said: “I'm not so concerned with myself, because I'll live. But there are sole-traders out there: people who, for instance, draw and sell their own comics on the internet. They're being told they have to register for VAT and register with the information commissioner to sell digital content. Same for bands selling music from their own websites, some comedians selling mp3s from their site, and so on. It'll put a lot of very creative, lovely people out of business…Bands, artists, writers, etc, will find it incredibly hard to sell digital content directly - so they'll either be forced onto Amazon, eBay, Etsy and the like, or they'll have to stop selling.” He concluded: “A rushed policy with little thought for the consequences - but that's government for you.”