vat – Techdirt (original) (raw)
Publishers Lobbied To ‘Axe The Reading Tax’ On Ebooks, Then Paid It To Themselves
from the lobbying-for-profits,-not-public-benefit dept
One of the (many) villains in “Walled Culture” the book (free ebook versions) is the publishing industry, specifically in the context of the transition from analogue books to ebooks. What could have been one of the most important expansions of the power and possibility of the book form became instead its opposite – a diminishment of both. As a result of publishers’ greed, ebooks became something you rented, rather than owned. Libraries are particularly hard hit: publishers typically only allow the books they license to educational establishments to be lent out for a limited number of times, or for a limited period. Publishers achieved the feat of using the shift to powerful digital technologies to make books less useful, purely in order to boost their profits.
The Walled Culture book explains in detail how the industry was able to do that thanks to bad copyright laws being abused yet further. But there’s a footnote to this transition that I was unaware of when I wrote my history of copyright in the digital age, but which underlines the extent to which most publishers are driven purely by the bottom line, and care little for readers or writers.
It concerns the taxing of books in the UK. Most goods there are subject to a Value Added Tax (VAT), which is a simple percentage of the sale price – generally 20%. However, certain classes of goods are exempt: this applies to things like food, children’s clothing, and also books. Or rather, to physical books: one quirk of the early ebook market was that ebooks were taxed at 20%, even though physical books were not. This led to a 2018 campaign with the catchy slogan “Axe the reading tax”. It was led by the Publishers Association, which wrote in a press release at the time:
Stephen Lotinga, CEO of the Publishers Association, said: “The government must do everything it can to cut the unfair tax on ebooks, magazine and newspaper online subscriptions.
“It makes no sense in the modern world that readers are being penalised with an additional 20% tax for choosing to embrace digital.
“Whether a book, newspaper or magazine is electronic does not change the principle that we should not be taxing reading and learning.
It was a powerful campaign, backed by just about everyone who cared about books, reading, education and knowledge. It had an extensive Web site Axethereadingtax.org, with lots of very good reasons why the tax should be abolished, such as:
A simpler VAT regime would benefit universities and libraries in terms of freeing up resource and money, as well as students buying educational materials.
And…
Digital formats are vital for the blind and partially sighted, who can listen to audiobooks or read in the largest print sizes on electronic devices, for those with dyslexia and for elderly or disabled people who may lack the physical capabilities to handle print books easily.
The extra 20% tax meant that everyone was paying higher prices for no benefit. The Publishers Association pointed out:
Removing the VAT from ebooks and epublications would mean that people who buy them would benefit from lower prices. The impact on the government would be a modest reduction in VAT revenues and is small relative to reduced VAT revenues from other goods and services which are zero-rated, including caravans and hot takeaway food.
The good news is that in 2020, the UK government finally removed the 20% VAT on ebooks. The Publishers Association was rightly triumphant:
We are thrilled that, as of 1 May 2020, the unfair 20% VAT on eBooks and digital newspapers, magazines and journals has been removed. Knowledge and learning are vital, whatever format you favour.
Three years later, it’s interesting to see how that has worked out in practice, and fortunately Tax Policy Associates have done the calculations. Here’s what they found:
The VAT cut means that ebook publishers could have cut their prices by 17% and made the same profit. They didn’t. Over this period there were 8%+ price reductions for comparable products – computer game and app downloads – where there was no VAT cut. There were no overall price reductions for ebooks.
We also analysed individual pricing data for the 30 best-selling ebooks on Amazon UK in 2020 (as Amazon is by far the most significant ebook retailer). Only four out of thirty showed a sustained price reduction which could plausibly have been attributed to the May 2020 VAT cut. That likely overstates the effect.
UK government figures show that dropping VAT on ebooks cost the state £200 million. In theory, that is £200 million that could have flowed to everyone buying ebooks, in the form of lower prices. Here’s where it actually went:
Amazon generally retains a royalty of around 30%, so we can say that of the £200m annual cost of the VAT abolition, Amazon received about £60m and publishers/authors about £140m.
To put these figures in context, the publishing industry’s UK profit in 2021 was probably around £200m. Even after increased author royalty payments, this looks like a very significant enhancement to publisher profitability.
This is a perfect example of the how the copyright world operates. It lobbies for changes in the law, claiming that the public is suffering in some way, and exploits the willingness of creators to help put pressure on the government to right that wrong. But when those changes are made, the companies do not pass on the benefits to the public or creators, but keep most of it for themselves.
In the case of axing the reading tax, it was indeed axed – but none of the claimed benefits for universities, or the blind and partially sighted materialized. The publishers kept book prices the same, which means that they picked up an extra 20% of an ebook’s price, since they no longer had to pay VAT. In effect, the tax was still there, but now it simply went to publishers, not the government. All the problems the Publishers Association complained about in terms of the harm to books, reading, learning and education remain. But publishers have become much richer for zero additional work, so suddenly these things don’t matter any more…
Follow me @glynmoody on Mastodon or Twitter. Originally posted to the Walled Culture blog.
Filed Under: books, ebooks, publishers, tax, uk, vat
Companies: publisher's association
French Gov't Rejects Plan To Tax DRM eBooks More Than Non-DRM eBooks
from the good-idea,-severely-flawed-targeting-and-execution dept
For a moment, it looked as though France might utilize its tax system to make a point about how much DRM devalues electronic goods. A few months ago, an initiative surfaced seeking to amend tax laws in order to hit DRM-laced ebooks with a higher VAT. (Or, more accurately, lower the VAT on non-DRMed ebooks.)
A French deputy (Isabelle Attard) thinks that proprietary and DRM protected eBooks should not be legally considered books and should not benefit from the fiscal advantages enjoyed by books as cultural artifacts.
This is a good point, but this deputy’s suggestion wasn’t based on the ongoing removal of “first sale” rights by the addition of DRM. Rather, her amendment looked to target the largest purveyors of ebooks.
Arguing that the real problem was not a question of pricing, but rather the vertical integration of platforms like those of Amazon, Apple and Google, Attard proposed to address the problem by offering a fiscal advantage in the form of reduced VAT to sellers offering open books that consumers can read on any platform.
Although the targeting was off (and France’s relationship with Amazon [in particular] can safely be described as “antagonistic“), the idea of punishing DRM-laden merchandise by hitting it with a higher tax rate appealed to many people, many of whom perhaps didn’t share the same antipathy towards Apple, Amazon and Google.
Not that France wasn’t already giving ebooks a cut rate on taxes. It’s that this amendment would have excluded ebooks with DRM from that reduced rate, as Nate Hoffelder at The Digital Reader explains.
Under France’s [proposed] tax laws, DRMed ebooks will be taxed at a higher rate (currently 19.6%), while DRM-free ebooks will be taxed at the lower 5.5% rate.
[E]books are already sold in France with a 5.5% VAT, or value added tax, bundled into the list price. Technically that is illegal under current EU regulation; ebooks are defined as a service and thus should have a higher VAT applied. But no penalty has been applied (so far) so at this point it is really a matter of opinion.
Attard’s rationale for the rate change tracks with the proper application of the VAT by differentiating between DRM-laced ebooks (“services”) and non-DRM ebooks (“goods”) based on what DRM does to a product.
“Yes, everything that goes against interoperability, or imposes reading constraints would be subject to a VAT of 19.6%, in the capacity of services, and not sale of a book, therefore of a product.”
Unfortunately for anyone hoping France would open a discussion on the DRM issue, the amendment was shot down. Parsing this out from an iffy translation, the reasoning appears to be that while the French government feels it should make an effort to diffuse the power of “vertical markets” (Amazon, Apple, etc.), screwing with the VAT rate isn’t the right approach. Furthermore, lowering the rate for non-DRM ebooks would likely subject the French government to further “condemnation” from the European Commission for “distorting” market activity.
In short: good idea, wrong tool.
But there’s another factor in play as well. While Apple and Amazon sell many ebooks with DRM, they do so at the behest of publishers — large publishers who would probably be none too thrilled to see any shrinkage in their market share thanks to a higher VAT rate, as a commenter at The Digital Reader pointed out.
[Y]ou can bet the major publishers, who license DRMed e-books for the most part and were caught unawares the first time, will not let it pass so easily this time round.
So, an amendment that targeted Amazon (the publishers’ worst enemy, according to entities like the Authors’ Guild) should have been the publishers’ best friend, except for the fact that it targeted DRM, another of the publishers’ best friends. (The enemy of my friend is my enemy, even if the enemy of my enemy is my friend?)
If the publishers did help get this amendment kicked to the curb, they’re probably fine with it slightly benefitting Amazon as well. And as for Amazon, France is still hard at work pushing through legislation specifically targeting the online giant.
French lawmakers on Thursday took aim at Amazon to protect local bookshops by voting through a law that bars online booksellers from offering free delivery to customers on top of a maximum 5 percent discount on books.
Its rather telling that these actions have very little to do with protecting consumers and everything to do with protecting the status quo. The latest anti-Amazon law springs from a 1981 law passed to protect small bookstores from the encroachment of supermarket chains. Thirty years down the road, the same tactics are being deployed, which would indicate the past efforts haven’t done much other than assure France’s booksellers that they’ll never have to make an effort to compete in the market, and that any detrimental effects of these laws will continue to be borne by French citizens.