Publishers reassured on tax rates

Date: 19/02/1998

By Chris Johnstone

THE European Commission has moved to allay publishers' fears that it is planning a shake-up of value added tax which would lead to a sharp rise in the price of newspapers.

"We do not have any plans for changes," said the spokeswoman for Taxation Commissioner Mario Monti, adding: "To do that would open up a Pandora's box."

The Commission's bid to reassure the industry followed warnings from publishers that the institution was seeking to tidy up the existing VAT regime by stopping member states imposing zero or reduced rates on newspapers. They also suggested the shake-up might be widened to include books and magazines.

The publishers' fears have been fuelled by the need for the Commission to come up with proposals for a definitive VAT regime to replace the current transition measures.

Four EU countries (Belgium, Finland, Denmark and the UK) exempt newspapers from VAT. Belgium and the UK do not impose any charges on magazines either, while Finland zero-rates subscription sales but charges 22% VAT on street sales. Books are zero-rated in Ireland and the UK. Most other states impose very low levels of tax on the printed word, with two-thirds applying rates of less than 5%.

Publishers argue that a VAT increase would result in an immediate drop in circulation and loss of advertising revenue. They fear that readers put off by the increased cost could easily turn to radio, television and online media.

The industry insists there is no need to iron out differences in national rates of VAT since newspapers and magazines are often local products aimed at local markets.

One of the only exceptions is the Irish Republic, where British newspapers can undercut their home-based rivals because they are not subject to VAT, while the Dublin government imposes a 12.5% rate on Irish publications.

The publishers argue that the solution would be for all newspapers in the Union to be zero-rated. "A zero rate is a politically neutral and economically efficient method of giving EU support to newspaper readership.

It would be consistent with the Commission's overall fiscal and cultural objectives," they added.