Stars urge EU to lower sales tax on music

[Gordon B]

Stars urge EU to lower sales tax on music

THE ASSOCIATED PRESS

BRUSSELS, Belgium -- The European Union should lower sales taxes on compact discs by treating them as cultural works like recorded books rather than as electronic hardware, pop stars and other music industry representatives said Tuesday.

High value-added taxes on CDs pose a "life and death situation" to Europe's ailing music industry, French musician Jean-Michel Jarre said as European Union finance ministers discussed the issue at a meeting in Luxembourg without resolving it.

The VAT rate on recorded music starts at 16 percent in Spain and Germany and ranges as high as 25 percent in Sweden versus a 5 percent tax rate for recorded cultural works such as books.

Music sales slumped by nearly 11 percent in the first half of 2003 under pressure from a black market for pirated CDs that doubled in the last three years, according to the International Federation of the Phonographic Industry, a London-based music industry trade group.

Sixty percent of consumers would buy more CDs if VAT rates fell, the IFPI said.

The EU finance ministers, unable to resolve the issue, asked the European Commission for fresh suggestions to break the impasse. "Positions have remained very divergent," said Italian Finance Minister Giulio Tremonti, the meeting's chairman.

"We have to respect these new media as we respect old ones," Jarre said, adding, music should "be considered slightly different from yogurt or from toothpaste."

Yves Barbieux of the Belgian band Urban Trad and singer Helmut Lotti echoed Jarre's plea.

But music sellers will only lower their sticker prices after taxes drop, said Philippe Person, managing director of French music store trade group SDSD who presented an anti-VAT petition signed by 140,000 Europeans to support his case.

[mke]

Originally posted by Gordon B
Yves Barbieux of the Belgian band Urban Trad and singer Helmut Lotti echoed Jarre's plea.

I see they're using only the biggest stars...

The FNAC has held a few days during which they priced CDs as if the VAT were 5%. I don't knwo why this issue is so complicated to resolve.

[Nefertiti]

Originally posted by mke
I don't know why this issue is so complicated to resolve.

Once they give the music industry a fiscal privilege other sectors will ask for it too. Why should a Top Ten compilation be considered a cultural good, and not video games or porn movies? Why should one pay a higher VAT rate on clothes than on CDs?

The article speaks about "High value-added taxes on CDs", but in fact the normal VAT rate is applicable. There is no luxury tax on CDs. The music industry just compares it to the special low VAT applicable on books, which is one of the few VAT exceptions that exist (others being for goods of first necessity).

That being said, I'm definitely in favor of paying 10% less for CDs, though I don't think a VAT reduction will lead to a price reduction of the same amount. In the US, no VAT is paid (in most states), but CDs are not generally 20% cheaper than in the EU.

[Douglas]

Another issue that makes this complicated is how do you treat the hardware you need to "read" the CD? Should that be reduced rate as well? The delay is also related to thinking on how to adapt to internet sales of recorded music.

The article is a little misleading as the EU cannot lower the actual tax rate for a particular good in a member country. It can say that the tax rate must be at least 15% or 5% if it is on a special list. And this story is about the music industry lobbying to be included on that list. Any change in EU tax legislation requires unanimous agreement, which is probably the main reason why nothing has happened.

Each country can set whatever standard and reduced tax rates it likes, as long as they are above the minimum rates agreed at the EU level (subject to some caveats). The country is under no obligation to offer reduced rate VAT to recorded music even if was included on the EU list.

[Tom Storer]

Originally posted by Nefertiti
In the US, no VAT is paid (in most states), but CDs are not generally 20% cheaper than in the EU.

Aren't they? Comparing list price for recent releases on CDNow.com and the French site fnac.fr, they are $17.98-$18.98 and 22.11 euros respectively. At current exchange rates, 22.11 euros = $26; 18.98/26 = 72% approx.

And that's list price. Promotional offers for new releases bring the price down by equivalent proportions in France and the US, but they last longer in the US: CDNow.com is still offering its $13 or $14 price on many items that are years old, whereas the FNAC's promotional price lasts a month.

Maybe things work out differently in other countries, however.

[mke]

OK, thanks for that legal info.

"Why should a Top Ten compilation be considered a cultural good, and not video games or porn movies?"

Should a Top 10 book be considered a cultural good? Does a role-playing game book benefit from low VAT? What romantic/erotic/love manual books?

[Nathaniel Catchpole]

VAT's 17.5% here, did not know there was a lower rate for books. CDs are considerably cheaper in the US than in the UK, in almost all instances (used, new releases, back catalogue, special offers, indies, chains).

[Nefertiti]

mke, that's exactly why I asked this question.

VAT privileges were granted to bookmakers because politicians wanted to favor this sector, for cultural reasons or whatever. If it is extended to CDs, other sector could come and ask for the same.

That's why it is a difficult issue. Once you start making exceptions it's hard to stop. And VAT is a big issue for a national budget.

[Alastair]

Originally posted by Nathaniel Catchpole
VAT's 17.5% here, did not know there was a lower rate for books. CDs are considerably cheaper in the US than in the UK, in almost all instances (used, new releases, back catalogue, special offers, indies, chains).

Books are zero-rated for VAT in the UK.

[Nefertiti]

Originally posted by Tom Storer
Aren't they? Comparing list price for recent releases on CDNow.com and the French site fnac.fr, they are $17.98-$18.98 and 22.11 euros respectively. At current exchange rates, 22.11 euros = $26; 18.98/26 = 72% approx.

And that's list price. Promotional offers for new releases bring the price down by equivalent proportions in France and the US, but they last longer in the US: CDNow.com is still offering its $13 or $14 price on many items that are years old, whereas the FNAC's promotional price lasts a month.

Maybe things work out differently in other countries, however.

France (19.6% VAT) is not very representative, because CDs have always been very expensive there, even in online stores. Amazon.fr lists many full price CDs at 21-22 Euro, whereas they cost 18-19 Euro at Amazon Germany (VAT 16%) but also at the FNAC in Brussels (VAT 21%).

You must also compare prices with US retail stores, which are higher than the discount prices offered by CD Universe and others.

It is also remarkable that CDs are more expensive in Luxembourg (15% VAT) than in Brussels (21%). So clearly VAT is not only factor in price differences.

Here is a list with the VAT rates in the EU. You can see that almost all countries have a reduced rate for books only.

[Alastair]

Originally posted by Nefertiti


Here is a list with the VAT rates in the EU. You can see that almost all countries have a reduced rate for books only.

As they should. In fact, any tax on books is a tax on learning. Saving a failing industry (yeah, right, Jean Michel Jarre, just 'cos you've had to give Charlotte Rampling a divorce settlement hardly means you or Vangelis will starve) or rewarding starving artists was never the point.

[Aggie87]

Is Jean-Michel Jarre still a big star in France?

[mke]

Originally posted by Aggie87
Is Jean-Michel Jarre still a big star in France?

Good question.

[Douglas]

J-MJ hasn't appeared on my radar screen since I started living in France.

But there again my radar is programmed not to notice him.