Glasgow MP calls for 0% VAT on e-books

Glasgow MP calls for 0% VAT on e-books

A Glasgow MP has argued that the government should risk incurring infringement proceedings by the European Commission (EC) rather than keep a 20% VAT on e-books.

In the Westminster Room of the House of Commons yesterday (2nd July), Glasgow MP Tom Harris gave an adjournment speech he had timetabled arguing that the VAT rate on e-books should be level with that of print books – 0% instead of 20%.

He said that consumers would be hit by a hike in e-book prices after 1st January 2015 as a result of a new law which applied VAT to e-books in the country from where they are purchased instead of where they are sold from, which would result in putting people off buying e-books and in turn discourage reading, he argued.

However, Treasurer minister Andrea Leadsom reiterated the government’s long-held stance that because the EC categorises e-books under “electronic services” instead of “books” the government was not allowed under EC law to lower the VAT on e-books.

When asked by Leadsom whether he would want the UK to incur infringement proceedings by the EC, which is what happened in the case of France and Luxembourg when they lowered the VAT on e-books to 5% and 3% respectively against the EC’s directive (but are yet to experience any penalty), Harris said he would be “relaxed” about the idea. “I am more than relaxed about the UK being the target of court action by whatever European Institution was relevant if it is good for the UK industry,” he said. “Why should we not act in favour of UK industry and against interference from the EC?”

Harris argued: “If this change goes ahead in January while the Treasury sticks to its position of insisting that an e-book is not a book at all but the equivalent of a video game, is therefore subject to 20% VAT, then the whole industry – the whole industry and not just those specifically involved in producing and selling e-books – will suffer. And suffer significantly.” He continued: “The government argues that its legal advice indicates there is no scope to change the VAT treatment of the sale of digital book products under EU law but I simply cannot accept this. Because Luxembourg and France have already challenged this, cutting their rates for e-books to 3% and 5.5% respectively in 2012. There is no reason the UK can’t follow suit.”

Harris said other European governments had taken the EU on in this issue: “Germany, Poland and Italy are all calling for reductions in the rate of VAT on e-books. Will the UK add its voice to that call?” he asked.

However, Leadsom disappointed him in her answer, arguing that if the UK allowed VAT to be lowered on e-books, it could spread to other products categorised under “digital services”, which could threaten the £2.5bn in tax the government received each year on those products. “E-books are a growing industry and therefore is not in need of a stimulus in terms of a VAT cut,” she said.

When Harris responded that he was not suggesting the industry needed "subsidising" but was rather calling for the same treatment for e-books as physical books, Leadsom reitterated: “The EU requires us to categorise e-books as electronic services.” She added that at a time the government was focussed on economic recovery, this was further demotivation to cut VAT on e-books. However, she assured him: “We are focussed outside VAT to support the digital economy and making great efforts in this area.”

France and Luxembourg have incurred infringement action from the EU after they reduced the VAT on e-books against the EC’s directive. Amazon has decided to base its European headquarters in Luxembourg and claims to sell e-books from that country to all its European operations, because of the low 3% VAT Luxembourg levies on e-books. An EC press statement at the time it announced it was taking action against the countries said the different "situation is creating serious distortions of competition that are damaging to economic operators in the other 25 member states.”

It added: “Local actors in the electronic book market have complained that some of the dominant players in this market have reorganised their distribution channels to benefit from these reduced rates, which has apparently had a serious effect on the sale of books (both digital and traditional) in the other member states in the first quarter of 2012".