VAT cut could see ebook prices tumble

Luxembourg ruling could mean cheaper Kindle books, piling pressure on UK vendors

Stewart Mitchell
22 Dec 2011

Prices of ebooks could tumble after officials in Luxembourg slashed the VAT charged on electronic titles.

In the UK, paper books are VAT exempt, while ebooks incur a 20% added tax, which has led to criticism that books for Kindles and other readers are too expensive.

The rate cut in Luxembourg – from 15% to 3% - is significant because that’s Amazon's European base, which could leave UK high street book shops at a disadvantage and put pressure on the UK Government to match the rate cut.

The UK has previously resisted calls to bring ebooks in line with traditional formats, with the Government claiming it was against EU regulations. It may now be forced into a rethink.

We would prefer VAT to be lower or zero-rated for e-books but believe it is wrong to exploit loopholes

“This is a key development,” Amanda Tickel a partner at consultant firm KPMG told The Financial Times. “If the UK doesn’t follow suit, it risks missing out on a massive future revenue stream in digital.”

The Luxembourg cut follows a decision by the French to reduce ebook VAT to 7%. Vat is charged at the location of the seller, rather than the buyer, which would allow Amazon to undercut UK-based ebook sellers, fuelling concern among retailers.

"We would prefer VAT to be lower or zero-rated for ebooks but believe it is wrong to exploit loopholes such as this,” James Daunt, managing director of Waterstone's told The Book Seller.

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