The gap between print books and e-books has widened recently, since Spain’s Prime Minister Mariano Rajoy announced an increase in the VAT that affects e-books on July 11, among other unpopular austerity measures. Print books, on the other hand, continue to enjoy preferential status as “cultural goods,” maintaining a VAT of 4%. In what seems more like a privilege to a segment of the industry than to culture itself, theater, music and movies, together with e-books, will all be taxed at a rate of 21%, which will either cut profits or raise prices in an already depressed consumer market.
Update: Several readers have pointed out that Spain already charged a high VAT on ebooks; it would be more correct to say the rate isn't changing much. That is still a gift to Amazon.
Now, I can understand that the Spanish government need to raise money, and I'm not criticizing them for it. But the ebook market is the wrong place to get those funds.
The obvious effect of this move is that publishers will raise prices in order to pay more money to their government. And thanks to fixed pricing laws, Spanish ebookstores will have to follow suit and charge the prices set by the publishers. This will likely mean fewer ebooks sold and a slower growing market.
Here's the not so obvious result: Amazon will be selling Spanish ebooks at that higher price but they won't be paying the extra money to the Spanish government. You see, Amazon sells ebooks in the EU out of their Luxembourg operation. That means that they collect the retail price and pay 3% of it to Luxembourg, not Spain.
This new tax law is going to give Amazon a small but noticeable advantage over their local competition. They already had a retail operation which could soak up potential losses from the Kindle operation, and now they got this free gift from the Spanish government. With each sale Amazon is going to get a little stronger while their competition gets a little weaker.
image by robin.elaine