A Taxing Time

So I’m seeing a lot of discontent from readers about the impact the new EU tax laws are having on the price of ebooks. These rules came into effect on the 1st January this year, and for many readers, the first they knew of them was when they tried to buy a book and found the cost had increased by somewhere in the region of 20%. Authors should be less surprised, because we all had warning weeks or even months ago that this was going to happen.

So for those who don’t know, here’s the skinny on what went down.

What is VAT?

Value Added Tax is a sales tax applicable to most “luxury” items within the EU. The rate fluctuates between countries and ranges from 8-27%.

What changed on January 1st?

New EU laws which came into effect at the start of 2015 state that companies which trade internationally have to pay any applicable VAT on the sale of all items in the country where the sale occurred.

How is that different to what happened before?

Before January 1st, companies could pay tax based on the country in which they were located, rather than the country in which they traded. This led to many big corporations, such as Google, Amazon, and Starbucks, paying next to no tax in most of the EU.

So why do I have to pay more for ebooks now?

When the new rules came in, internationally-trading companies had two options: swallow the tax bill themselves, or pass it on to the consumer. Most have chosen to pass the losses on to the consumer, which means (depending where in the EU you’re purchasing books from) the cost of buying an ebook just went up by approximately 20%. Amazon, it should be noted, has been doing this for years. Outside of their dedicated Kindle domains (US, UK, DE, FR, ES, IT, CA, AU, JP, MX, IN, BR, NL) consumers have to buy ebooks via the .com (US) site, and are charged an additional sales tax of ~$2 per book.

Is there nobody keeping their prices the same?

Authors and publishers have a choice about whether or not to swallow the tax losses, or pass them on to the consumer. Most small presses right now seem to be passing the VAT on (so a DSP title priced at $6.99 in the US will now be the equivalent price in the UK, plus an additional 20% to account for the VAT). Indie authors can choose to take a ~20% hit on their earnings from each sale, or pass the VAT on the same as publishers have. Most will, I suspect, end up falling somewhere in the middle, increasing their prices a little but still taking a slight drop in income.

How much is this going to cost me, the consumer?

Individual impact is obviously going to be determined by how many books people buy. Let’s say you read a novel a week priced at $6.99/equivalent, which is towards the higher end of the m/m spectrum. In the UK you’ll be used to paying around £4.40 per book at that price. So:

£4.40 x 52 = £228.80 per year (and I’m so, so sorry to anyone who didn’t want to see in black and white what their ebook habit cost them!)

Assuming the full 20% UK VAT has been passed onto the consumer for every one of those books, this year the same titles will cost approximately $8.40/£5.30 each, a £0.90 increase per title.

£5.30 x 52 = £275.60 per year, a £46.80 increase.

Now that’s an extra £47 we would all rather have in our back pockets, but even looking worst-case, it’s less than £1 a week. So while there’s certainly cause to grumble, I don’t think the sky is falling quite yet.

What’s the conclusion?

Here I can only speak personally, but as an author and a reader, I’ve been hit both ways. Unless I increase my prices I’ll earn ~20% less on each book I sell than I did three days ago, and when I want to buy a book, I’ll have to pay ~20% more. As a reader, this is an irritant. As an author, it’s potentially catastrophic. I don’t think many people could lose a fifth of their income and not miss it.

However, there is a third way of looking at it. As a British citizen, I’m celebrating. These new rules mean that this year for the first time, we will actually see some tax from the big multinationals who earn hundreds of millions of pounds and return squat to our economy. If my contribution to that (as a consumer) is £50 or even £100 over the space of the year, I’ll take it. If it means I buy 30 books instead of 50, I’ll still take it. The only other alternative governments have is to increase the tax rates of average people to cover the shortfall from corporate avoidance, and I’ll end up paying then anyway.

The system is not perfect. Nobody likes spending more. But the way I look at it, I can’t get change from £10 for a ticket at my local cinema, which offers me maybe two hours’ entertainment. Instead, with a tenner I can buy an ebook and still have enough money left for many bars of chocolate to enjoy alongside it, and I can re-read it again as many times as I like. Let us not forget, ebooks are still cheap. They still represent good value for money. And I for one will still be buying them.

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21 replies on “A Taxing Time”

  1. Helena Stone says:

    As always you hit the nail squarely on the head. Buying books to me is almost as buying cigarettes used to be for me; it doesn’t really matter how much they increase the price by, I can’t resist. I kicked the buying of cigarettes habit (not quite the smoking of them yet 🙂 ) but I can’t see myself ever not buying books. And yes, more money into the national economy rather than those large corporations is always a good idea.

  2. Sarah_Madison says:

    Well put! Thanks for putting this in perspective. 🙂

  3. younela says:

    This means to me on my pension,I’ll be buying less books so will have to be more choosy. However I think it is disgusting that ebooks are VAT rated at all when paper books aren’t. Surely ebooks are greener? They are no more luxurious than a paper book.

  4. Eepa says:

    I’m still little confused about am I know paying double the taxes or are all the sellers now getting little more themselves?

    As I understand the issue, there was a tax that was payed according to the place the company was situated. Apparently somewhere around 10%. Am I know paying that + VAT for my country? Or am I only paying VAT and the company keeps that extra 10% for themselves while I pay whopping 24% more for my books now?

    Even now when Euro is so weak and buying things in dollars is relatively cheap, I just can’t afford to buy as much as I used to when I’m spending almost quarter more for each book.

    • Kate Aaron says:

      Companies used to pay tax in the country where they were based. If you’re in Europe I assume you’ve noticed Amazon EU is based in Luxembourg, which is a well-known tax-haven. Under the new rules, companies now have to pay VAT in the countries where their sales actually occur, rather than where their HQ is based. This is good news for all our economies because it means we’ll actually see the tax we’re owed being put back into our economies. You’re not paying double tax, it’s just that these items have (for all intents and purposes) never been taxed before. Amazon could theoretically keep the prices the same and pay the tax bill from the billions they earn in profit, but they’ve chosen instead to increase prices for the consumer, then put the onus on suppliers to choose whether or not to take the hit for it. Either we increase our prices by 20%, or we lose 20% of our payment.

      For the consumer, prices will increase by the rate of VAT in their country (which in the UK is 20%). That money will be paid to the government of the country where the sale was made (so if you buy from Amazon.co.uk, the money goes to HMRC). Amazon doesn’t actually make any more profit from it (indeed, there’s an argument increased prices will result in lower sales and therefore cost them money), but what it does do is ring-fence their existing profit margins rather than eating into them. Amazon’s suppliers (be that indie authors or whoever) don’t get any more money either. Indeed, if we opt to keep our prices the same as they were before the 1st Jan, we’ll get 20% less.

      Separate to the issue of VAT is that of corporation tax. VAT is a tax on commodities and products (pretty much anything you can think of buying is covered under VAT regulations somehow), corporation tax is a tax on a company’s profits (rather like an income tax for businesses). This is something all companies have to pay (although most of the big ones are very good at avoiding it) and is separate from VAT. Because it’s a tax on their profits, they can’t add extra to what you pay for goods to account for it, it’s already calculated into their margins.

  5. Shirley Ann Speakman says:

    I’ll be buying a lot less books I already have a tight budget so now I’ll only be buying my favourite authors. I can’t believe they are taxing reading especially e-books, the EU always make the most ridiculous rules.

    • Kate Aaron says:

      This isn’t about taxing reading, it’s about clamping down on corporate tax avoidance which has existed on a scandalous scale for years. In 2011, Amazon had UK sales of £3.35 billion, and only reported a tax expense of £1.8 million. In the same year, Google made £395 million and paid £6 million in tax, and Starbucks paid NOTHING on sales topping £400 million. Every taxpayer should be outraged at that because I promise you, if I failed to pay my bill this month, they’d soon come knocking on my door.

  6. This a great post, especially since this whole thing is making me a little dizzy. I have to correct you on one small fact though. “consumers have to buy ebooks via the .com (US) site, and are charged an additional sales tax of ~$2 per book.” That is not true, at least not in my case. I only have to pay the Romanian VAT, which is 24% Yup, higher than in the UK. i’ve never paid any other sales tax for ebooks.

    To be honest, I think Amazon and the other big companies should absorb the new taxes themselves. On the other hand, I can’t blame smaller publishers for wanting to pass this on to the customers. Then again, it’s part of culture or art. I don’t think book should have the same level of taxation as other products. I just hope people keep reading either way.

    • Kate Aaron says:

      If you Google “Whispernet Surcharge” you’ll see the $2 levy on non-dedicated Kindle domains is standard. If you’ve avoided it, tell us how! Most people can see the applicable taxes in effect if they switch domains. For example I’m in the UK, and my Free Men books are all priced at $3.99 in the US, but when I go to Amazon.com I see a price of $4.64, because there’s tax implications of US companies selling products overseas (a UK buyer purchasing from the American-based site = export, even if it is only an ebook).

      This law was enacted to trap a handful of very big companies who are avoiding countless millions in tax annually. I think it’s regrettable so many small businesses will be affected by the ruling. I’ve seen plenty of micropresses saying they’ll be unable to trade internationally because they can’t afford to be tax registered in every country of the EU and deal with all the paperwork that entails. Sadly they’re the ones who can least afford to swallow the cost of additional taxes, but will suffer most from increasing their prices. If the big multinationals had played fair to begin with we’d never be in this position, but this is business. Playing fair doesn’t occur to them.

      • I have never had that… I have a .com account, there is no romanian version of the site, nor will there ever be, I suspect. So each time I buy a book, the 24% VAT is added to the price. I have no other taxes on my invoices. Not sure how I am avoiding it, to be honest.

        I do get the ruling, by why on earth they’d require so much paperwork is beyond me. There should be one registration that’s available across the EU, one point of payment, and then taxes distributed between EU countries. The one good reason to have the EU in the first place is to make such things easier, not harder.

      • Eepa says:

        I have never payed any 2 dollar extras either. I have payed 0,99$ on occasion for using the Whispernet, but I don’t know why. Now it has been totally free for the books I have bought from them and for all the books I must now send to my Kindle via it. (My kindle is pretty broken and I can’t download anything from computer.)

        According to my old order confirmations I have always payed them 24% taxes. I can’t check if I have to pay more now as I can’t find any other buying option than 1-click. :rolleyes:

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