As a result of nearly a decade of lobbying by the Hungarian Publishers’ and Booksellers’ Association, based on a motion by the cultural minister, ten years ago the VAT rate for books and sheet music was reduced from the former 12 % to the EU average of 5 %. Three years later, this preferential rate was also granted to printed dailies and weeklies.
On another initiative by our Association, as a result of an individual MP motion by the President of the Cultural and Press Commission of the Hungarian Parliament, the Hungarian Parliament decided to also apply the preferential VAT rate of 5 % that had only been applicable to paper-based books until then to books reproduced on other physical data media from 1 January 2011. Item 15 of Annex 3 to the Hungarian VAT Act that has been in force sine then states that “versions of books and sheet music reproduced on any other physical data media are subject to a VAT rate of 5 %”. The justification of the Act states: “Instead of the present 25 % rate books and sheet music that are not published on paper, but on other physical data media and for the use of which electronic services are not required will be subject to the 5 % rate. Based on this, the 5 % VAT rate will apply to audiobooks, but not to digital books (as services provided electronically still do not enjoy preferential taxation).”
So the Hungarian government has shown its willingness to decrease the tax rate for digital and e-books to that of paper-based and audiobooks, but stressed in their official justification forwarded to our Association that EU tax legislation does not allow for this decrease and the Hungarian government does not intend to enter into discussions with EU agencies on this matter. The fact that the reasoning of the Hungarian Ministry of National Economy was substantiated was proven last July when the European Commission launched infringement procedures against France and Luxemburg because as of January 2012 these countries had introduced the preferential reduced VAT rate applicable to paper-based books for electronic books as well. (That VAT rate is 5.5 % in France.) The EU justification stated that electronic books do not qualify as books, but as services provided electronically.
This means that the EU adhered to the absurd reasoning that a reduced VAT rate can be applied to books, but not to services. (Another argument against this “tax principle” hindering development is that on the EU list of services to which a reduced VAT rate may be applied includes services such as audio-visual services.)
So according to the EU’s construction a person using a tablet or an e-book reader does not read books, but merely uses an electronic service. None of the actors in the Hungarian book industry would say that reading is not still reading, irrespective of the media. An electronic or e-book is exactly the same kind of intellectual product as a paper-based one; a book is determined by its contents, not by its physical media.
In our opinion, the present construction of the law and the application of different tax rates for paper-based and audiobooks on the one hand and digital and e-books on the other is a severe competitive disadvantage for all EU countries concerned, being particularly severe in the Hungarian book market, because the 27 % VAT rate applicable in Hungary is the highest in Europe. As a result, the difference between the tax rates for traditional and electronic books is 22 %! We think that the primary impediment to the development of the digital book market is the extraordinarily high VAT rate. We are convinced that this is the major reason why Europe has a competitive disadvantage as compared to the English-speaking book market that is dominating the world of book publishing anyway. As is generally known, the VAT rate for book publishing in the United States, including electronic books, is zero, and apart from the high level of technical development and the large prevalence of suitable e-book readers this is the major reason why digital book sales have already reached or at least come close to the level of traditional book sales there. Even in Germany that is regarded as one of the most developed book markets electronic books account for only 1—2 % of total book sales. Based on last year’s sales data, their share is less than 0.5 % in Hungary, whilst we have traditionally been in the front ranks in Europe as far as the number of titles and the number of copies are concerned.
Although it seems that this year the European Council finally realised that changes to the VAT guidelines and Annex III are necessary, experts have been discussing a new general definition of e-books and digital books for months, and this process must be completed before a decision on allowing a VAT reduction can be made. In our opinion, the matter is by no means as complex as to require consultations involving 28 countries for months, possibly years, since there is no need for a new, exact definition of electronic books, digital newspapers and magazines that is the prerequisite of applying a preferential tax rate. They should simply be regarded as versions of traditional paper-based books published on a different kind of media – as stated in the passage from the Hungarian Act quoted above. Thus, what is needed is merely a technical reclassification to the effect that digital books and magazines are books and magazines just like paper-based ones and should thus be granted the same preferential taxation.
The purpose of reclassification is not only to put an end to the absurd financial distinction between printed and electronic books and thus make cultural values available at a lower cost and more easily, but also to facilitate encouraging young people to read irrespective of the media and to address activities infringing intellectual property rights, i.e. illegal downloading and piracy, more efficiently.
If we do not succeed soon in achieving competitiveness of materials, books and magazines to be read electronically in the EU member states, including Hungary, at the dawn of the digital age English-speaking investors will put national players out of this market. In secondary and tertiary education (where digital teaching materials are unstoppably gaining ground) works in foreign languages, mostly English, will “replace” the achievements and results of Hungarian experts and research, the Hungarian language will not be able to develop in many disciplines, will fall behind in obtaining and transferring information, and Hungarian education will get into an even less favourable position in a stiffening international competition.
Based on all these, we ask the Hungarian officials and experts involved in EU decision-making to do all they can to achieve that the EU VAT Directive is amended not in several years’ time, but as soon as possible, and that Annex III is amended to the effect that the provision preventing preferential taxation for e-books in the Hungarian VAT Act can be deleted. In the EU, establishing VAT rates falls within the member states’ competence, which means that if the EU VAT Directive classifies all books, including electronic books, as books irrespective of the media, the Hungarian parliament will be able to reduce the current VAT rate of 27 % for electronic and digital books and magazines to the preferential rate of 5 %. We hope that the Hungarian decision-makers will, just like those in France, adopt the preferential taxation already applicable to paper-based books.
Hungarian Publishers’ and Booksellers’ Association