December 7, 2018

Is it time to stop taxing ebooks?


Nothing is certain but death and taxes, so says the old proverb.

Yet while we are all embarking on our slow decline to death (Merry Christmas everyone!) the tax we pay along the way varies dramatically. In the US you pay a sales tax, which I recently learned can vary wildly from state to state, on average between 2.9% and 7.25% of the price of goods purchased. That blew my mind, as in the UK we pay Valued Added Tax (VAT) across the board of a whopping 20% on goods and services.

VAT was first introduced back in the 1970s, when the UK joined the European Economic Community, the precursor to the European Union (EU). In 2015 Rita de la Feria, professor of tax law at Durham University explained to Camila Ruz and Maisie Smith-Walters of the BBC:

“Basically the idea was to protect lower income households… Anything that was a luxury was subject to VAT, anything basic was exempt.

“The decisions were based on evidence available in 1972.”

The resultant law, forty-six years later, is a weird mishmash of old and new. Fancy a delicious chocolatey-orange snack? Jaffa Cakes are exempt. Nuts with their shells on: exempt. Nuts without shells: tax please! Oh, the luxury of not having to de-shell your own nuts. Tampons are taxed, although at a lesser rate of 5%. There has been uproar for years on the so called ‘tampon tax’ which presumes women not bleeding all over the floor every month is a luxury. As for books, they are not subject to VAT, to avoid the idea of a tax on knowledge. Physical books, that is. On e-books in the UK, everyone pays 20% tax. Confused yet?

Things might be about to change for the UK e-book. The EU, that pesky organisation that promotes freedom of movement and protects human rights and political freedoms, which we’re so keen to escape from, has issued new legislation this week allowing member states to reduce or do away with VAT on digital publications. Stephen Lotinga, chief executive of the Publisher’s Association, is due to discuss the issue today with the Treasury, the British government department responsible for developing and executing the government’s public finance policy and economic policy. He told Alison Flood at the Guardian:

“Zero-rating digital publications is a change that will not only put money into the pocket of consumers, but also benefit authors, publishers and the wider UK economy. Reading is a social good, regardless of whether we read pixels or ink. That’s why we’re calling on the government to stick to its principles of not taxing knowledge by acting urgently to axe the reading tax,”

“The UK government has long said its hands are tied by EU law on this illogical and unfair tax – not any more.”

It does only seem fair e-books catch up with physical books: a book is a book is a book. The National Literacy Trust director Jonathan Douglas pointed out to Flood that his new research showed that “one in five children now read books online, and that children are spending almost three times as long reading online every day than they are reading in print.”

Diana Gerald, the BookTrust chief executive added that the tax was “discriminatory” against blind and partially sighted people who use digital publications more. And earlier this year, the PA reported that according to Nielsen, over fifty-fives make up a third of e-book readers.

It turns out e-books enhance reading experiences for many. Charlie Redmayne, CEO of HarperCollins and president of the PA said to Flood the tax was:

 “illogical, unfair and discriminates against all kinds of readers”.

“In or out of the EU, whatever kind of Brexit is approaching, the opportunity exists to change this anomaly of the tax system and we should seize it.”

This is all too true. With a no-deal Brexit still a possibility, the realities and timelines of when the UK will leave the EU is still unknown. A change sooner is better than later.

And who is to say what future taxes will look like once the UK departs? Economic predictions from the UK government itself have shown, as reported by the BBC, that the UK economy could be up to 3.9% smaller under Theresa May’s Brexit plan even after fifteen years, compared with staying in the EU, and that a no-deal Brexit could decrease the economy by 9.3%. So while abolishing VAT on digital publications may be good for readers (an independent study for the PA by Frontier Economics saying it could put “up to £210m” back into the pockets of consumers) the UK government will be out of pocket. Will the lowering and abolishing of certain tax rules really be on the cards then?

Axe the tax, now!



Nikki Griffiths is the managing director of Melville House UK.