Sam: On VAT Rates and Supporting Quality Journalism

Earlier this summer, Fianna Fáil released a set of proposals for supporting quality newspaper journalism.

One of the ideas in the plan was to set up a fund of at least €30 million “for distribution to qualifying entities or projects”.

This cash might be gathered from the Value Added Tax (VAT) paid on newspaper sales — which Fianna Fáil estimates at about €27 million annually (and/or a “levy” on digital advertising sales).

But why have the government collect this money and then return it to a favoured few? Why not just collect less VAT on newspaper sales in the first place?

The answer, it seems, is the Czech Republic.

Print vs Digital

As print circulations decline year after year after year, many newspapers are betting their futures on increasing digital subscriptions.

The Irish Times recently reported that the print circulation of its flagship title declined by 3.3 percent in the first half of this year, but “Sales of its audited digital edition … rose by 24 per cent year on year to 18,903.”

At Dublin Inquirer, the number of people who subscribe to our print edition has been increasing since we launched it in 2016. But we’ve also been making moves to ask more of our readers to take out online subscriptions.

Along the way, we discovered that while the VAT rate on print subscriptions is 9 percent, on digital subscriptions it’s 23 percent. Someone’s got to pay this: the newspaper or the reader.

We’ve chosen to take the VAT out of our end, and so we make significant (for us) payments to Revenue every two months. The listed prices of digital subscriptions to the Sunday Business Post, Sunday Times, and Irish Times also seem to include VAT.

For years, NewsBrands Ireland, which lobbies on behalf of the national papers, has been pushing for the VAT rate on digital publications to be reduced from 23 percent.

This would either give an immediate boost to news organisations by cutting the size of their payments to Revenue, or lower the cost to their readers of subscribing, incentivising more subscriptions.

However, “EU law prevents our Government implementing this change,” said Ann Marie Lenihan, CEO of NewsBrands Ireland.

A European Effort

The European Council of the European Union has been working since 2016 towards changing the rules to allow EU member countries lower their VAT rate on “e-publications” if they want to. (This would apply to electronic books, newspapers and periodicals.)

The benefits of this change would include “taxing what is essentially the same product in a physical and digital format at the same rate, promoting reading, [and] supporting key sectors for the democratic well-being of society,” said Iacob Gammeltoft, policy advisor for News Media Europe, which promotes the interests of the news media to EU institutions.

They would also include “complying with the case law of the European Court of Justice which has already noted the inconsistency that is created by having different rates applicable to physical and digital publications”, Gammeltoft said.

The Irish government seems to be behind the idea. “We have been supportive of the proposal which is due to go to [the Economic and Financial Affairs Council] ECOFIN in June for decision,” a 2017 Irish government briefing said.

But the Czech Republic blocked the plan on 16 June 2017, and again at another one on 13 July of 2018. Why is Prague standing in the way of this proposal?

“[T]he complete reform of reduced [VAT] rates is on the table at the moment,” said Zden?k Vojt?ch, a spokesperson for the Czech Ministry of Finance. “The isolated debate about one single item in the whole complexity of the VAT rates is not therefore a very systematic approach.”

At the July meeting, the Czech Republic’s representative said the country would be ready to compromise on this issue soon, but when asked how soon this might be, Vojt?ch wouldn’t specify. “We cannot give you a definite answer at the moment,” he said.

Tired of Waiting

Some EU member countries have grown impatient with waiting, and have gone ahead and reduced their VAT rates on e-publications already.

“France and Luxembourg have both applied a reduced rate to digital publications,” said Gammeltoft, of News Media Europe. “Denmark is thinking of doing so as well, and there are call within the Dutch Parliament to consider taking a similar course of action.”

“There could in theory be repercussions if the European Commission decided to launch an infringement procedure against Member States who are in breach of the VAT Directive,” he said. “However, this scenario is unlikely to materialise.”

Will Dublin take the same step and forge ahead without permission? No, it won’t says a spokesperson for Ireland’s Department of Finance.

“Officials are engaged in the discussion process and work in these areas is ongoing. However, until such time as these proposals are agreed, it is not possible to change the VAT rating of ebooks,” the spokesperson said.

But Gammeltoft, of News Media Europe, said the Czech Republic might get what it wants and clear the way for the change soon anyway. “[A]doption of both files at the October ECOFIN [meeting] … looks increasingly possible,” he said.

When asked what next steps would have to happen after that for member states like Ireland to be able to legally lower their e-publication VAT rates, Virginie Battu-Henriksson, a press officer for the Council of the European Union, declined to give any information on the record. “I am afraid that it is not the way it works in Brussels,” she said.

Not a Long-Term Solution

If the government wants to try to support news organisations, and sees the VAT on newspapers as a tool to do this, it seems like lowering the VAT rate on e-publications might be a better way to proceed than collecting and redistributing VAT receipts – and risking actual or apparent inequity or favouritism.

However, fiddling with tax rates won’t be enough to save news organisations in the long-term. The problem for companies trying to produce quality journalism is not that their VAT rate is 9 percent or 23 percent or whatever. It is much more fundamental.

The problem is the very model of trying to pay for good journalism by selling ads. The inherent conflict in that model was better hidden when times were good and advertising cash was pouring into news organisations and so they had some negotiating power, the power to sometimes say, “No, we won’t do that.”

But now that these news organisations are losing the competition for the advertising dollars to Facebook, Google and the rest, they are scrambling to suck up to advertisers to lure them back, and in the process they are degrading themselves and their journalism and alienating readers.

It is now common practice for many news sources to publish advertisements that look like articles (in effect, selling off their legitimacy), to commission anodyne stories they hope will please advertisers (“beige journalism“), and, of course, to publish hyped-up, substance-less clickbait.

This is all meant to serve advertisers, not readers, and it’s contributing to the seemingly inexorable decline in newspaper circulations. To escape this self-reinforcing downward spiral, it’s time for news organisations that want to do quality journalism to move away from the advertising-supported model.

At Dublin Inquirer, we think the reader-supported model is the future. But if anyone else has other ideas, we hope you’ll give them a try, and that they’ll work – because something needs to change.