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Spain Raises Taxes on eBooks – Amazon Says Thanks

Guess what I learned today? I learned that stupid politicians are not an American monopoly.

Publishing Perspectives is reporting that Spain is raising the tax charged on ebooks from the current 18% 4% to 21% – the same as other services and products in the country.

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

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Víctor S. July 20, 2012 um 4:01 am

The VAT on ebooks was already at 18%, not 4%. There’s a EU law that it’s applied to all the european countries and compels them to apply the general VAT (not the preferential one that applies to print books) on ebooks. Stupidity was wider and older than you thought.

Juan July 20, 2012 um 4:02 am

Well, I’m Spaniard and I’m not happy with tax increases but the news is not entirely correct.

In Spain VAT has three levels:
Super-reduced 4% for essential food (milk, bread, eggs…) and culture (books and newspapers)
Reduced 8% (10% in september)
18% (21% in september)

Spanish goverment has allways applied normal VAT to eBooks because European goverment consider eBooks a digital service, so normal VAT should be applied. France and Luxenburg applies a reduced VAT to eBooks and will get a fine from Europe.

The very bad news is that theater, movies and music will get the normal VAT.
Anyway, not all "culture" gets a VAT level increase bullfighting "shows" will stay in reduced VAT. :-O

iolanda July 20, 2012 um 9:48 am

Hey, look at the bright side: Spanish government doesn’t consider bullfighting as culture and art anymore! (this is irony, of course). Shame, shame and shame. Reduced IVA for bullfighting is not economy, is politics.

Aceflor July 20, 2012 um 5:49 am

Considering the economic situation in Spain right now, the growth of the ebook market is the least, the very least of their problems.

21% VAT for everything (not only ebooks!) is a pain, but the country desperately needs it. And since I live in Spain, I will have to pay those 21%, but I will do so without complaining, and certainly not about ebboks….

Juan July 20, 2012 um 2:58 pm

I wrote a full parragraph about needs, taxes, goverment, banks and so. But that’s talking about politics and I don’t think this is the place to talk about it. So I decided to delete it.

My hole point in what I wrote was about what they consider culture and how they tax it.

Today’s news is that school material (not textbooks), which has a 4% VAT today will be 21 % in september.

Aceflor July 20, 2012 um 5:50 am

Ebooks of course, not ebboks… !

fjtorres July 20, 2012 um 6:19 am

The 3% Luxembourg VAT is under review by the Brusselcrats so it is supposed to go up at some point… probably right after Amazon has ramped up their various local Kindle stores and Kindle installed bases.

Aceflor July 20, 2012 um 7:30 am

Seriously, this whole conversation painfully reminds me of the famous "if they don’t have bread, give them brioche instead"…As said, the government did not have the ebook market in focus with this increase.

fjtorres July 20, 2012 um 8:49 am

I know things are bad in Spain.
(The Economist keeps me updated of the grim reality.)

But ebooks are an opportunity for individuals, companies, and the country as a whole.
Theoretically, Spain should be to the spanish-speaking world as the UK and the US are to the Global English ebook market; a source of globally-licensed quality content available to all comers. But that requires a mature *mainstream* native content market to leverage from, just as Global English ebooks are a consequence of the mainstreaming of ebooks in the US, Canada, and he UK. (Australia seems to be lagging a bit–they’re still playing by the old protectionist playbook).
If Spain is to recover, it needs to create jobs. *Export* jobs would be best.
ebooks are not *the* answer but they could be a small part of the solution, no?
The government was not singling out ebooks for special treatment.
But maybe they *should* have?

Aceflor July 20, 2012 um 5:07 pm

No offense, but it’s a mini niche right now. 26% unemployment means a much broader approach is needed. Making an exception for ebooks would bring revendications from all sides for much more exceptions, and that goes against the idea of a general effort.

Tyler July 20, 2012 um 8:15 am

VAT or Value Added Tax. How was Value added because of a tax? Such brainwashing to people to make them feel good about the tax. Does Spain have a national income tax or a regional income tax? Since many people want to eliminate the IRS and do the same here, I was just curious.

fjtorres July 20, 2012 um 8:35 am

Value-added tax means they *tax* the added value as a product changes hands. (You knew that right? Sarcasm is hard to flag on the 'nets. 🙂 )

At least originally, VAT was supposed to be charged at a very low level (1.5% or so) and compounded every time the product changed hands (from manufacturer to distributor, from distributor to wholesaler, from wholesaler to retailer, from retailer to customer) so a nominal 1.5% VAT compounded to a 5% tax that gets baked into the price.
If you look at the proposals for a US VAT, that is how they intend to sell and hide the real tax rate.
In the EU it sounds as if the VAT is really an ordinary consumer sales tax, hence the more honest description of the true burden on consumers.

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