Bolkestein hits pause button on low tax CDs

Date: 13/03/03

By Peter Chapman

FRITS Bolkestein, the internal market commissioner, looks set to put on hold a bid by European record companies to be allowed to charge reduced rates of value-added tax for compact discs.

Record companies want Bolkestein to include CDs in an updated list of products for which member states can opt to set special reduced rates of the tax, due before the summer break.

They argue that music CDs should have the same right to low-VAT status as books because music is just as important a part of EU culture as literature. Allowing lower rates of VAT would boost sales, they add.

However Bolkestein, in charge of Commission tax policy, indicated to MEPs he was sceptical about the idea, which must be backed by every member state in order to be approved.

"Lowering the rate of VAT is often cited as a means of putting right the grave problems of the music sector, due principally to piracy," he said. But, warns Bolkestein, lowering VAT "would not be an efficient measure to fight against organised piracy at global level".

Record firms would be unlikely to pass on the full VAT cut to customers, and any lowering of price would be temporary, he predicted.

"Even if the lowering of VAT is completely passed on to customers, the price would still be higher than those on the black market," he said. Moreover, Bolkestein predicted that lowering value-added tax would not do anything to stop web surfers from illegally downloading music from the internet.

He said equipment to allow illegal copying is widely available and only "truly dissuasive measures" such as levies on blank CDs and computer hardware are likely to have an effect.

Levies, he added, can be used to repay rights-holders for lost sales thanks to piracy and home copying.

This view is likely to anger IT industry chiefs, who are calling for EU action to stop member states from slapping levies on their equipment.

Bolkestein's comments come ahead of a meeting with Jacques Chirac aide François Léotard on the issue later this month. France - an enthusiastic supporter of the low VAT for music campaign - wants the commissioner to include CDs along with restaurateurs in the reduced tax list, known as 'annex H' of the 6th VAT directive.

Léotard has been touring EU capitals trying to drum up support for the CD measure.

He met Culture Commissioner Viviane Reding last week. Reding's spokesman Christophe Forax said she is sympathetic, but told Léotard that Bolkestein is the commissioner who would have the final say.

Music industry insiders told European Voice they believe he will change his mind on the issue if France can prove support for the measure from other large member states.

Frits Bolkestein, the internal market commissioner, looks set to put on hold a bid by European record companies to be allowed to charge reduced rates of value-added tax for compact discs.