The International Monetary Fund (IMF) has suggested that the same amount of VAT should be applied to printed books and media as to digital, to create a fairer market for publishers.
Printed books are currently one of the few items that are entitled to zero-rate VAT. These also include some food items and children’s clothing.
However, the IMF has argued that it is unfair for physical books and literature to be zero-rate when e-books, digital movies and music files are subject to the standard 20%. In the Fund’s latest assessment of the economy, in which it looked at possible solutions for reducing debt and boosting the UK’s financial growth, it has called for VAT to be made equal across all literature platforms.
The latest report said:
[quote]”Revenue measures could include reducing tax expenditures (such as VAT zero-ratings).”[/quote]
The IMF did not specify which items should be eligible for the proposed increase; however, a recent report commissioned by the European Commission suggested that physical books should be the first things to lose the zero-rate.
Reducing zero-rate VAT on printed literature would create a balanced, single rate of VAT across all digital and physical platforms, it said.
But others, like the European Commission vice-president Neelie Kroes, doesn’t agree. She stated that she would prefer it if taxes were “equalised downwards”.
So far, Germany has lowered the rate of VAT on its audiobooks to just 7%, and is planning to make a similar reduction for its e-books. Meanwhile, France and Luxembourg have reduced their rates on digital media to 5.5% and 3% respectively.
When Europe declared a 20% VAT rate for e-books, the rule was criticised by consumers, publishers and organisations alike. The International Publishers Association (IPA) called it “discrimination” against digital media and said the situation was “technophobic, backward and unfair”.
IPA secretary general Jens Bammel called the European approach “a mess.” She said:
[quote]”It stands in the way of digital migration. With major markets like Brazil and Mexico making e-books exempt from VAT, Europe is in danger of getting left behind.
“We need consistent treatment for all book formats, and the most logical way to achieve this is by reducing VAT on e-books.”[/quote]
From January 1 2015, new VAT legislation in the EU will come into play which will tax services like broadcasting, telecoms and electronically supplied services (including e-books) at their place of consumption.
UK booksellers and literary organisations are pushing for the e-book VAT to be scrapped, which would indeed create the level VAT playing field that the IMF so desperately wants to see.