VAT - why pay it?

Well, there's the deficit and the debt and the economy shrinking and the increasing number of people who'll need help as they get older**. That sort of thing.


As I mentioned, it isn't as if this is putting up the price of books, not when an ebook may still be cheaper than the paper version (even without considering the cost of posting/delivering the latter to you).

And it isn't as if VAT is not applied to items we believe to be VAT-free. Food, for instance. When the rate of VAT was temporarily reduced to 15%, my supermarket till receipts mentioned something about a VAT refund: basically, as the tax change was temporary, the supermarket didn't change the rate of VAT, just gave the customers the 2.5% back. Thing was, I was only buying food, which I thought was all VAT-free. Some of it obviously wasn't. (And, presumably, still isn't.)



** - Shame Amazon's VAT goes to that alleged tax-haven, Luxembourg. :(
 
With food I think it has to do with whether it is classed as prepared food.

The point is how can they justfiy saying ebooks have vat and printed books don't. That's like saying hardbacks are a luxury (remember way back, that was the original concept of vat) so should have VAT but paperbacks aren't so shouldn't. It's utterly silly.
 
But a hardback is more "luxurious" than a paperback: one is being asked to pay more even though the intellectual** content is the same.

But paying tax on something that, even with the tax added, is cheaper than its identical (in terms of content) alternative, seems a no-brainer: the customer gets a cheaper product; the deficit is slightly reduced***. How is that in any way silly? What should be taxed instead? What extra cuts to expenditure should be made?


** - One might argue that some books deserve to be taxed, as they have no intellectual/educational content at all.

*** - Unless you buy from Amazon. (Though even Luxembourg has a budget deficit. :eek:)
 
Writers get paid on royalties which are similiar to share dividends and not subject to Vat. There should be 20% tax deducted at source and the rest of the tax due gets sorted on self-assessment.

Vat (value add tax) is on trade only and book sellers/shops - schedule DI (trade).
I can't remember which schedule royalties fall under, but it's not DI.

So as a writer, you don't sell to customers so there is no Vat.
Writers get royalties, which has a similiar tax treatment to shares on working out tax due.

All this changes if you are trading on Amazon or similiar. Then you are selling to the final customer as trade. The Vat registration limit is £77k. If you sell more than £77,000 of ebooks, you may have to get a vat number. I doubt if ebooks are vat exempt but as I don't specialise in the publishing industry (as yet, fingers crossed for the future) I may not be 100% correct.

Ebooks are not printed, I'd imagine the vat exemption is still based in the past and relates to printed books only. Who knows, this may change in the future. If however, I ever sell £77k of ebooks, I won't give a monkies, I'll bank my cheques with a smile...
 
Yes Ursa but that is the publishers charging more for the luxury; that is their choice based on their ability to sell at that price. The government has no right to decide prices of a product like this. Only the vendor has that right.

VAT was originally a tax on luxury goods. Hence transport, banking, unprocessed food etc. were all exempted. Books were also exempted as, I presume, they were considered to be improving the intellectual level of the population. So now it seems they are saying books are only a good thing if they are printed but ebooks are clearly not intellectual so we'll tax them as a luxury. Whether or not the end price ends up higher or lower is completely irrelevant as far as taxes are concerned. VAT is a tax on value (hence the name) therefore to use it to change the value of a cheaper product to the same as a more expensive one is fundamenally wrong. It is way outside the remit of the government.

I agree we are in difficult financial times but that does not excuse inconsistent taxing by the government. If they want to tax books fine, tax them, but they should tax them all. So VAT should be added to all books (maybe a lower rate VAT) not just to ebooks, there is no consistency in that. Or don't tax them at all; what they are doing now is simply wrong.

To be fair, when I talk about government here it is an EU not a UK regulation that ebooks must have VAT charged at each country's standard rate and Luxemburg are currently defying that regulation by charging a lower rate for ebooks.

The EU has said that it intends to revise how VAT works across the single market, with an assessment set to run in 2012 and proposals to be made by the end of 2013. As part of that it has indicated that "similar goods and services should be subject to the same VAT rate and progress in technology should be taken into account in this respect, so that the challenge of convergence between the on-line and the physical environment is addressed”. It has already been agreed that VAT will be charged on where the buyer resides rather than where the content is sold from though it is not clear if the proposed date of change of 2015 is fixed, or whether it can be moved forwards in light of the Luxembourg decision.
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Edit: Bowler posted whilst I was typing. You are absolutely right, Bowler, the VAT anomaly is due to the medium. The book exemption is actually an exemption on printed material (hence newspapers as well) whereas ebooks are classified as, I think, something like software. There was a similar furore in the photography business recently with electronically produced wedding albums being classifed differently to manual constructed ones. This was, I think, recently thrown out in a court ruling. There are plans to try and fix this but currently tax is way behind the development of technology, paricularly online technology.
 
I'm not sure whether Luxmbourg's move is illegal. While the EU mandates that the standard rate of VAT is no less than 15%, countries are allowed to have reduced rates (such as the 5% on domestic fuel in the UK). Luxembourg has a number of reduced rates, one of them being 3%. It is this band to which ebooks in that country are now subject.

And while I'm not in favour of Luxembourg's tax policies (particularly the ones that make some people think it's a tax haven), they can hardly be contravening something that won't even be a firm proposal until the end of 2013.


But beside all these technical issues, please tell us what you would tax or cut to make ebooks VAT-free. (Is there anything that isn't as painless as VAT on ebooks? I would seriously doubt it.)
 
Ursa major said:
But beside all these technical issues, please tell us what you would tax or cut to make ebooks VAT-free. (Is there anything that isn't as painless as VAT on ebooks? I would seriously doubt it.)
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But that's not the point Ursa. As I say I agree the government needs money. But that money should be raised in a consistent manner. That's like saying lets have a tax on everyone who lives in a wooden house but we won't tax the people living in brick ones.

Although ebook sales are increasing I shouldn't think the VAT revenue on them is all that significant yet, The same tax income could probably be generated by taking the VAT rate up to something like 20.1% (likely even less than that). You'd barely notice the difference but it would probably earn the government more money and it would be consistent.

Edit: you say painless, but all the printed book readers would soon start squealing if they proposed to put VAT on all books. I see no reason why anyone should be penalised because they choose to read their books in electronic format.
 
Vertigo said:
But that's not the point Ursa. As I say I agree the government needs money. But that money should be raised in a consistent manner. That's like saying lets have a tax on everyone who lives in a wooden house but we won't tax the people living in brick ones.
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It isn't like that at all. But even if it was, the principal** aim of those seeking to raise tax - except, as with petrol, alcohol and tobacco, where the government is trying to increase the price of a product to deter the purchasers - is to do it as painlessly as possible. VAT on ebooks seems to be meeting that aim, because the books are still cheaper than in their paper form(s).

Vertigo said:
Although ebook sales are increasing I shouldn't think the VAT revenue on them is all that significant yet, The same tax income could probably be generated by taking the VAT rate up to something like 20.1% (likely even less than that). You'd barely notice the difference but it would probably earn the government more money and it would be consistent.
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But that's the clever bit: people will become accustomed to paying the VAT on ebooks so that it'll be essentially painless as ebooks take over the market.

Regarding the 20.1%: why should others have to pay even more tax, on what they may see as necessities, to save you a few pence on what they'll see as your leisure activity, particularly when you're already paying less than you would if you bought a paper book?

Vertigo said:
Edit: you say painless, but all the printed book readers would soon start squealing if they proposed to put VAT on all books. I see no reason why anyone should be penalised because they choose to read their books in electronic format.
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1)The squealing will be avoided, as the VAT won't be applied to paper books. (If a government is foolish enough to put VAT on paper books, they'll deserve to be on the receiving end of all the squeals.)
2) Readers of ebooks are not being penalised at all, because the price they pay (even with the VAT added) is usually less than the paper version. All that is happening is that the government is taking a slice of the money saved by using a cheaper means of delivering novels, etc., to the reader.


** - If only because it makes it easier to raise more tax when the taxpayer is not discomforted by paying the tax.
 
Regarding Luxembourg's (and France's) infringement of EU law, it seems you are right: the changes that are to be brought in by 2015 are to make what Luxembourg and France have done legal, but (in this case) irrelevant:
The Commission has sent letters of "formal notice" to France and Luxembourg after they reduced rates on digital books as of 1st January 2012, thereby infringing EU law. The rates are 7% for France and 3% for Luxembourg. The two countries have one month to explain their positions, and could then be asked to change their laws, or face further "infringement procedures". France has previously said its government would pay any fine levied on it by the EC, though it has since had a change of administration.

Ironically, the commission itself is pushing for the kind of change the two countries have already put in place. In 2013 it will put forward proposals aimed at equalising the rate of VAT applied on traditional books and digital books, following general recognition that the current situation is an anomaly: under current law e-books are regarded as a service supplied electronically, which is not included in this list and cannot therefore be taxed at the reduced rate. A further change is scheduled for 2015, when VAT on e-books will be paid based on where the purchaser is, not where the company that sells those e-books is based.
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From http://www.thebookseller.com/news/ec-warns-france-and-luxembourg-e-book-vat.html.


So by the time the tax revenues are becoming significant, they'll be pouring into the coffers of the UK**.



** - Subject to the EU proposals being agreed; subject to the UK still being in existence by then (which depends on the result of the referendum in Scotland).
 
I'm sorry I can't see that as fair, any way you look at it, Ursa. If a product is cheaper simply because it is cheaper to produce it is not reasonable for it to be taxed higher to make it the same price. If I bought a cheap tennis racket as opposed to a fancy magnesium alloy (or whatever) one. It would not be reasonable to have a tax levied to make the cheap one the same price as the more expensive one purely "because the books [cheap rackets] are still cheaper than in their paper [fancy metal] form(s)."

I don't have a problem with taxes they are necessary but they should be justified. You say "If a government is foolish enough to put VAT on paper books, they'll deserve to be on the receiving end of all the squeals", so you are saying it is unfair to tax printed books but perfectly fair to tax ebooks just because they are cheaper to produce. Also I have already paid tax on my eReader (which would cover the VAT on quite a few books) so now I have to pay a double tax because I choose to read books in a manner that is cheaper and [slightly] more eco friendly.

Oh and by the way most Amazon eBooks do not still end up cheaper than paperback ones; they end up about the same price, sometimes more expensive. Also they are still priced the same as the hardback until the paperback comes out.

I can buy and download all the tracks in an album for much less than I would have to pay to buy the CD. Should they have more tax on music downloads to make them the same price? Of course not, but that's exactly what they are doing with eBooks.

Edit: your second post came in whilst I was reading. And yes the Commission does seem to accept that the present position is an anomaly and they are planning to fix it. Which just goes to reinforce my position, though what form that fix takes remains to be seen.
 
Taxes, in general, are justified by the way they're spent. We spend a lot more money than the taxes we collect, so the government isn't going to take any notice of special pleading from people who are still benefiting from a price reduction in their voluntary purchases.

All taxes could be seen as unfair. Taking money off people who work to give to those (I hope, few) who choose not to, is unfair. Funding well-off sportsmen and women (and their venues) by taxing the poor is unfair (although I doubt many would be complaining just at the moment).

Fairness is not what tax is about. Painlessness (or as close as one can get) is what it's about (except where a penalty - tobacco, petrol, alcohol - is being applied).

VAT on ebooks is relatively painless. Have you ever thought, "I won't buy that ebook because there's VAT on it." If few people think that (and I imagine very few do), the tax is going to stay, whatever you think about it. (It's practical politics, which trumps principals and fairness every day of the week.)
 
I disagree taxes are meant to be fair. VAT was added as a tax on goods considered a luxury and was not meant to be added to goods considered an essential. You say "Fairness is not what tax is about. Painlessness (or as close as one can get) is what it's about...". That might be true but it is fundamentally wrong. Unfair taxes have always been fought (consider the poll tax, without worrying about whether you personally considered that one fair or not) But they only get fought vigorously when they affect a large (or wealthy) portion of the public. Saying that it is reasonable to tax something just because it is "painless" (which incidentally I disagree on) and effects too few people to cause a stir is a totally cynical way to impose taxes. It might be true that that is what happens but that does not make it right.

Also remember the reason we are paying tax on eBooks has absolutely nothing to do with the arguments you are putting forward. It has not been applied as a way to help get the country (Europe) out of financial difficulties. It has only been applied because the legal definition of a book used in the original exemption of books from VAT does not cover electronic media (classified as a service). This they are planning to fix and either that tax will go or they'll apply the same thing to printed books.
 
Very few taxes are fair. You mention the Poll Tax. But the Rates weren't fair**; the Poll Tax wasn't fair; the current system isn't fair. (Possibly*** the fairest system, local income tax, gets nowhere: too many people don't like it.)

But which caused the riots? The one that discomforted by far the most people, requiring them to pay at pains of fines and (possibly) imprisonment. And which had to be changed? The only one that had to be changed; the one that caused the riots and, probably far more importantly, widespread refusals to pay.

Practical politics at work. (Which is why the origin of the tax is somewhat irrelevant.)



** - Mainly because politicians didn't want to allow the process of reassessing rateable value to go ahead, which they thought would alienate ratepayer voters.

*** - The fairness depends on how you see it: should local property taxes be based on wealth (ownership of a major asset, landed property) or be seen as payment for local services? The answer to that question will change the perception of which tax is the most fair. (Fairness, it seems, is in the eye of the beholder. Just like beauty.)
 
The joy of any tax, Veritgo. Taxes don't seem to make sense when first looked at. Ebooks are only an electronic file and I can see problems when trying to decide which type of electronic file should be tax exempt or not. Mostly I suspect, old statute stays on the books and tax catches up at a later point. In many cases when some poor soul gets taken to court by the taxman! Like anything else in life tax is a bit of a muddle.

My cute little, Bear, Mr Smiths first ideas of tax was that it should be shared as an equal burden on all. I doubt very much if Smith would agree with Council Tax.
 
I agree with both of you. Tax isn't fair but that does not mean we should not protest over particular instances of unfairness.

I'm not naive, I know the realities of life, death and taxes. Personally I think we all pay too little tax in this country. I get really angry at the way we all complain about lack of funding for hospitals, education, law enforcement, etc., etc. and in the same breath condemn any party that even suggests an increase in tax to pay for it.

But I still hold that tax should be applied fairly and to tax a book just because it is in a different format it simply inequitable, unjust and downright wrong. The next thing you know Amazon will do a deal with the EU, and AZW books will be tax exempt whilst all other formats won't. Justification? Oh, well I expect they could come up with something like Amazon's AZW format has stronger DRM protection than the other formats (which is true) so the other formats should be taxed more because they are more likely to be used for pirating. Is that fair? No. Is it likely to happen? Probably not. Is it the same thing as the current situation? Yes; essentially it would be exactly the same.
 
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