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.