A tax on ebooks

August 27, 2010 12:08 PM

My husband is addicted to his Kindle.  He loves the flexibility of reading blogs, newspapers, and books on the fly without carrying all of them in his work bag.  On the other hand, I prefer the weight and feel of books and the print is easier on the eye to me.  When I told my husband this recently he said that it is all well and good because at least I am not paying VAT on printed books that I buy. I couldn’t believe that he would be paying VAT on e-books because, as we all know, in the UK essential items like food, children’s clothing, and books are VAT-free.  Apparently, e-books aren’t books thanks to an outdated definition of what a book ‘is’ so e-books are taxed at the normal VAT rate.

I looked into this a little more and stumbled across a number of things that impact the VAT cost on e-books.  First of all, according to Matthew Reisz, all educational institutions have paid and will continue to pay VAT on their e-subscriptions and e-books. He discusses in his article several reasons why this is bad news including the fact that it discourages the growth of the digital economy. Though I don’t agree with all of his arguments, I still find it shocking that educational institutions are paying such high VAT on digital books that they would otherwise not pay if they bought the book in print.

Furthermore, for various complicated legal reasons, the EU agreed that member countries could reduce their e-book VAT on "any similar physical medium that predominantly reproduce the same textual information content as printed books" come January 2011. This means that the UK could conceivably reduce their VAT on e-books or do away with it altogether without EU interference. Apparently, Spain has already taken advantage of this scheme.

It is bad enough that come January 2011 the VAT will rise to 20%, but this now means that VAT on ebooks will rise to 20% as well unless the Chancellor of the Exchequer does something about it.  He probably won’t so until the tax law changes, we might as well stick to our hardback and paperback books.My husband is addicted to his Kindle.  He loves the flexibility of reading blogs, newspapers, and books on the fly without carrying all of them in his work bag.  On the other hand, I prefer the weight and feel of books and the print is easier on the eye to me.  When I told my husband this recently he said that it is all well and good because at least I am not paying VAT on printed books that I buy. I couldn’t believe that he would be paying VAT on e-books because, as we all know, in the UK essential items like food, children’s clothing, and books are VAT-free.  Apparently, e-books aren’t books thanks to an outdated definition of what a book ‘is’ so e-books are taxed at the normal VAT rate.

I looked into this a little more and stumbled across a number of things that impact the VAT cost on e-books.  First of all, according to Matthew Reisz, all educational institutions have paid and will continue to pay VAT on their e-subscriptions and e-books. He discusses in his article several reasons why this is bad news including the fact that it discourages the growth of the digital economy. Though I don’t agree with all of his arguments, I still find it shocking that educational institutions are paying such high VAT on digital books that they would otherwise not pay if they bought the book in print.

Furthermore, for various complicated legal reasons, the EU agreed that member countries could reduce their e-book VAT on "any similar physical medium that predominantly reproduce the same textual information content as printed books" come January 2011. This means that the UK could conceivably reduce their VAT on e-books or do away with it altogether without EU interference. Apparently, Spain has already taken advantage of this scheme.

It is bad enough that come January 2011 the VAT will rise to 20%, but this now means that VAT on ebooks will rise to 20% as well unless the Chancellor of the Exchequer does something about it.  He probably won’t so until the tax law changes, we might as well stick to our hardback and paperback books.

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