Gera Endorses Reducing Music Tax Retail Assn. Supports Labels' Efforts In Lowering Vat On Sound...

European music merchants have thrown their weight behind record labels' efforts to have the level of value-added tax (VAT, or sales tax) applied to recorded music reduced to match that of other "cultural goods," such as books, across the European Union (EU).

In a statement issued Sept. 18 in Brussels, the European arm of the Global Entertainment Retail Assn. (GERA) announced it was endorsing efforts "targeted at the reduction of VAT on sound recordings." GERA-Europe says it is now working closely with other such trade groups as labels body the International Federation of the Phonographic Industry (IFPI), independent music companies association IMPALA, and authors group GESAC on the issue. IMPALA has been particularly vocal in its efforts to raise the issue with the EU.

The level of VAT applied to records in EU member states varies from country to country. At its highest—in Denmark and Sweden, for example—it runs at 25%; in Luxembourg, it is 15%. In the U.K., which is the largest music market in the EU, the rate is 17.5%. But the level of VAT applied to books—defined as "cultural goods"—runs from 0% in the U.K. to 25% in Sweden and Denmark, generally averaging around the 5% mark.

In its statement, GERA-Europe says, "Different VAT rates are now being applied to cultural products across the EU. Although film and concert tickets enjoy lower VAT rates, the EU member states are not allowed to apply reduced VAT rates to sound recordings. GERA-Europe finds this situation illogical and asks for the same rules to be applied to sound recordings as to other cultural products."

U.K.-based GERA-Europe VP and British Assn. of Record Dealers director general Bob Lewis tells Billboard: "We support the initiatives of IMPALA, the IFPI, and other bodies to seek a reduction in VAT. Any governmental action to change VAT legislation—with a reduction which would be reflected in an advantage to the consumer at [the] retail level—is welcomed by retailers."

He adds, "If governments take action on lowering VAT—which would be reflected in a lowering of retail prices—that surely would help increase our sales. It would also help combat piracy and the proliferation of home copying, which is affecting our business badly, resulting in the loss of investments and jobs."

The IFPI has welcomed the GERA stance and the increased level of co-operation on the issue. Frances Moore, the IFPI's Brussels-based regional director for Europe, says, "The record industry and retailers are united in the fight to reduce VAT on sound recordings. We feel there is discrimination between recordings and other cultural goods that are already entitled to a reduced rate."

Moore adds, "We have the support of the French government, who raised the issue with European Commission president Romano Prodi [at a meeting in Brussels] on Sept. 16. We welcome GERA's statement, and we shall continue to work together at a national and European level to end the tax discrimination on sound recordings."

Much of the music industry's recent activity concerning VAT has centered on the existing EU VAT directive, which enables individual states to lower VAT on products specified in Annex H of the document. The IFPI and IMPALA have lobbied for recorded music to be added to that annex.

In July, representatives of the IFPI met in Brussels with Frits Bolkestein, the European Commissioner in charge of the internal market, which is also looking into the VAT issue (Billboard, July 27). But at that meeting—described at the time by one IFPI insider as "disappointing"—Bolkestein told the labels that any decision on a Pan-European change would have to be agreed to unanimously by the EU's council of ministers of finance.

Unfortunately for those seeking change, there has so far been a mixed response from individual countries to the industry's lobbying on VAT. The U.K. government, for example, is not keen on any change, although there have been encouraging signs from France and Italy.

Indeed, several French ministers have made the VAT issue part of their agenda, and recently minister of culture and communication Jean-Jacques Aillagon came out in favor of including music as a cultural good and has committed to raising the issue with his counterparts in other EU countries (Billboard, July 27).

The Italian government has also expressed support for the suggestion that music should receive the same treatment as other cultural products and for a standardized level of VAT on records. But despite that stated support, a recent parliamentary motion presented by Italian opposition parties that proposed lowering the current VAT rate on music from 20% to 4% was rejected (Billboard, August 3).