VAT proposal of the European Commission

To Minister Dr György Matolcsy
Ministry for National Economy

VAT proposal of the European Commission
Dear Minister Matolcsy,
Over the past years, the Federation of European Publishers (FEP) joining the book-related organisations of the EU countries - of which the Hungarian Publishers' and Booksellers' Association, too, is an active member - has been lobbying intensively to achieve that the possibility of a tax relief for non-paper based books, i.e. audiobooks, digital books and book CDs, be considered in the VAT directives. As the Commissioner in charge of taxation and customs was a Hungarian in the previous term, our European colleagues asked us to contact him and ask him to support joint tax reduction. Of course, we were aware of the fact that in his office, the Commissioner represents European, not national interests, and we did not violate his independence by supporting FEP's joint request.
Two years ago, the European Commission accepted the following proposal submitted by the Commissioner in charge of taxation and customs, which was officially submitted to the Council of Ministers as well: "Category 6 (books, etc.): The current wording covers only books on paper support. For reason of neutrality, an extension is necessary in order to also cover books that are on CD, CD-ROMs or any similar physical medium that predominantly reproduce the same information content as printed books. Thus, only recordings that fundamentally reproduce the written text in a book are covered. A recording that includes supplementary material such as games, search functions, links to other material and similar, apart from the text read aloud, continues to be subject to the normal VAT rate."
Based on the above, on 7 July 2009, the European Commission, apart from including several products and services in the preferential tax rate category, decided that non-paper based books can be taxed preferentially just like printed books. Following this decision, Annex III Item 6 of the VAT Directive mentioned above was amended as follows: "supply, including on loan by libraries, of books (including brochures, leaflets and similar printed matter, children's picture, drawing or colouring books, music printed or in manuscript form, maps and hydrographic or similar charts), books read out loud and recorded on cassette or CD or any other physical medium, newspapers and periodicals, other than material wholly or predominantly devoted to advertising".
Dear Minister Matolcsy, 8 years ago, appreciating the arguments presented by the representatives of Hungarian book culture, the Hungarian parliament passed the decrease of the former 12 % VAT rate on books to the EU average of 5 % with a great majority. In all countries of the European Union, the unique role books play in society, in education and culture and thus in preserving and developing native language culture is acknowledged by applying this preferential tax rate. However, in the Hungarian tax system, so far only printed books are eligible for this preferential tax rate, which has severely obstructed the development of new book media and weakened their market positions.
As the member states of the European Union establish their own VAT rates, the normal and the preferential one alike, we kindly ask you to initiate, in accord with the European Commission's unanimous decision, which was also unanimously supported by ECOFIN, that non-paper based books be included in the category of products taxed at the preferential rate of 5 % when the Hungarian tax legislation is amended.
Thanking you in advance for your support,
Yours sincerely
Péter László Zentai
Budapest, 23 June 2010