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Reduced or zero rates of VAT should be removed from physical books to create a single rate across digital and physical, a report to the European Commission has argued.
However Richard Mollet, chief executive of the Publishers Association, said the group’s report was “one set of opinions among many”, while EC vice-president Neelie Kroes, responsible for Digital Agenda, said her personal preference was for taxes to be equalised downwards.
The Expert Group on Taxation of the Digital Economy report, released yesterday (28th May), has recommended that both digital products and their physical counterparts - such as e-books and printed books - should be subject to a uniform rate, at each member state’s standard rate of VAT. "It is clear from our analysis…that further complexity in terms of VAT rates needs to be avoided," the report stated. It added that there was also “a strong case for each member state to move to a single VAT rate as it will reduce complexity, promote the Single Market, and ensure neutrality and efficiency”.
The group’s view is only opinion, and does not any impose any obligation on the Commission. Any decision on a rate change would anyway have to be agreed by all EU member states.
The Federation of European Publishers said it was disappointed in the group's findings, arguing that while the aim of simplifying the VAT system was legitimate, it should “not trump more important considerations, such as those that have convinced 26 out of 28 EU member states to apply a reduced rate of VAT to print books and have prompted many of them to support the principle of including all sorts of books in the provision”.
The UK currently does not charge VAT on physical books, but e-books are subject to the standard 20% VAT rate. Earlier this month the government said there was “no scope” to change the VAT rate on digital books.
Mollet said the group’s report was “one set of opinions among many”, and that its recommendations on the need for simplicity could be welcomed. However, he said the report was “too quick to dismiss the positives from having variations in the tax system”.
“On a national level we do expect our tax system to recognize some behaviours,” he continued. “The 0% [VAT on books] is very important for fostering reading. We think [the VAT rate] should promote beneficial behaviours. I think they [the group behind the report] have missed that function of the tax system.”
The FEP said: “European book publishing, while providing the EU citizens with an invaluable service, benefits from very little public funding, which is also a guarantee to its freedom of expression. Any past attempts at increasing VAT on books, rapidly reflected in the levels of sales and publications, have shown that similar initiatives can only bring disastrous effects and seriously hamper growth, jobs and the basis of the knowledge economy.
“Due to the undisputable value of books and reading and their positive effects in cultural, social, political and economic terms, special consideration is warranted when policies that affect them are designed. Reduced rates of VAT have consistently proven to be a simple, unobtrusive and yet effective tool to encourage the production and consumption of books.
“We call on the European Commission to act now in favour of cultural diversity offline and online, and to allow Member States that are supporting such an approach to lower their VAT rates on e-books.”
European Commission vice-president Neelie Kroes, responsible for Digital Agenda, welcomed the report and said: "We cannot ignore the challenge to fairly tax digital products and services and the companies that provide them, and we must do so in a way that continues to encourage innovation. We must avoid punitive taxes, and we must ensure equal treatment of equal products and services. Personally I would prefer that taxes are equalised downwards.
"This report makes an important contribution to the tax debate, but I note there will be many important contributions in the coming months including the Commission's own impact assessment on this question."
The Commission is expected to release a report on its approach to taxation shortly.