Fat lady sings over lower-VAT music

Date: 09/10/2003

By Peter Chapman

THE music industry's campaign for lower VAT on compact discs looked doomed to failure after finance ministers effectively canned the issue in Luxembourg on Tuesday (7 October).

However, even though the fat lady appears to have sung in this long-running opera, the industry is loath to give up the fight and is now targeting MEPs.

The main thrust of the ministerial talks were the Commission's plans to revamp the EU's VAT regime by reining in the mish-mash of products and services that qualify for zero rates or other exemptions from the full rate of the tax.

These exemptions are a legacy of the past, when member states joining the Union often insisted on retaining special arrangements as part of their entry negotiations.

But in a heated meeting, ministers barely mentioned the music issue - focusing instead on a row between the Commission and the UK and Ireland, which both vowed to keep their VAT exemption for children's clothes.

"The French Finance Minister Francis Mer only mentioned [music] in passing," confirmed Jonathan Todd, the spokesman for Internal Market Commissioner Frits Bolkestein. Todd added that the industry's bid was doomed from the start as it was never part of Bolkestein's agenda.

However, the music business is unlikely to be silenced yet, over what it regards as a wholly unfair system: for instance, some countries allow reduced rates of VAT for books and magazines, while insisting that music sales are subject to the full force of the tax.

The International Federation of the Phonographic Industry, which has been at the forefront of lobbying for a change in the VAT rules, certainly intends to battle on - especially given that CD sales continue to decline due to the increased availability and threat from cheap, or even free, music on the internet.

French electronic music star Jean-Michel Jarre, a committed advocate for the industry's position, took its message to the European Parliament this week in the hope that MEPs might just persuade finance ministers to have an eleventh-hour change of heart.

Addressing the economic and monetary affairs committee, Jarre reminded MEPs that VAT rates on sound recordings range from 15% in Luxembourg to 25% in Denmark and Sweden. He argued that music should be treated in the same way as books, magazines and newspapers.

"Why, I ask you, should a pornographic magazine benefit from a reduced VAT rate when a recording of a Mozart symphony does not? This situation does not make sense," added Jarre, whose father Maurice is the Oscar-winning film score composer (he wrote the soundtracks for Lawrence of Arabia, Doctor Zhivago, A Passage to India and Fatal Attraction).

Back at the 'Ecofin' in Luxembourg, Danish and German ministers insisted they opposed any moves to add certain sectors, such as restaurants, to the list of areas eligible for a reduced rate of VAT.

The Commission proposed this after France claimed it should have the same rights as other countries that already have the restaurant reduction, such as Spain.

Meanwhile, Bolkestein said he could accept the gradual phasing out of the Irish and UK exemptions for children's clothes and footwear, negotiated as part of the two countries' accession to the Union, instead of his initial proposal to axe them as soon as the updated rules are adopted.

But Bolkestein insisted the phase outs could not last forever, adding they should remain only as long as the exemptions granted to the new EU members, which have been told to scrap their lists of zero-rated products by 2009 at the latest.

The music industry is loath to give up its struggle for lower VAT on compact discs and plans to target MEPs.