Call to cut tax on CDs set to be rejected

Date: 18/12/1997

THE European Commission has signalled that it is likely to reject EU culture ministers' calls for a reduction in the value added tax on compact discs - before it has even conducted a study into the impact of reducing the levy.

A group of ministers, led by Italy's Valter Veltroni and Luxembourg's Erna Hennicot Scoepges, has called for a cut, saying it would give the Union's music industry a valuable boost. They point out that VAT rates on CDs are much higher across the EU than those levied on books and other cultural goods, which benefit from reduced rates in some member states.

The two ministers, supported by their Spanish, Greek and Finnish counterparts, succeeded in winning a promise from the European Commission that it would order a study into the idea.

"We would like the Commission to clarify the situation on VAT in member states and to study what impact a VAT rate of 8% or so would have on the market," said one diplomat.

The study will consider to what extent a reduction in VAT would boost demand for CDs among young people and other social groups who listen to music most but may be priced out of the market because CDs are taxed at the same rate as other 'luxury goods'.

Ministers hope the research will convince Taxation Commissioner Mario Monti to act. But Commission officials say their plea is unlikely to be heeded.

"There is going to be a study, but we don't contemplate this leading to anything. The Commission position is very much against this. At the moment, Monti is not in favour of reducing VAT, not only on CDs but for the whole of multimedia," said a spokesman for Culture Commissioner Marcelino Oreja.

Despite the gloomy outlook, Adrian Strain of the International Federation of the Phonographic Industry (IFPI) described the planned study as a 'step in the right direction'.

"We have long argued that the current VAT treatment is an unfair discrimination against records compared to other cultural goods. What we want is a fair treatment of records that recognises the status of records alongside other items from zoos and books to cinema tickets which enjoy reduced rate VAT," he said.