WRITTEN QUESTION E-0826/96 by Katerina Daskalaki (UPE) to the Commission (12 April 1996)

Subject: Inclusion of audio cassettes and discs on the list of goods and services eligible for the reduced VAT rate applicable in the European Union

Application of the standard rate of VAT to audio cassettes and discs is largely the result of historical considerations since the taxation of these audio products at a higher rate was introduced in the majority of Member States at a time when they were only distributed amongst an elite.

These products - which serve as an important medium for artistic creation - are at present subject to the standard rate of VAT applied in the Community, which cannot be less than 15 per cent. A reduction in VAT would clearly lead to a fall in the price of discs which would be particularly welcome since prices remain high, particularly for national productions, the costs of which largely have to be recouped in a limited market. A cut in VAT would also boost consumption and provide support for European music and for employment in this fragile industry. Furthermore, many Member States wish to promote audio cassettes and discs as cultural goods par excellence.

Can the Commission therefore say whether it intends to propose that cassettes and discs be included on the restricted list of goods and services eligible for a lower rate of VAT?

Answer given by Mr Monti on behalf of the Commission (21 May 1996)

The Commission is not planning to propose that audio discs and cassettes be included in Annex H to the Sixth VAT Directive (77/388/EEC), ((OJ L 145, 13.6.1977, )) which contains the list of supplies of goods and services that may be subject to reduced rates of VAT.

In order to guarantee the principle of tax neutrality in respect of the various means and media for disseminating information or gaining access to culture, identical provisions must be applied to goods or services of the same kind that are supplied under identical conditions. Unlike books or admissions to a concert or cinema, which are eligible for reduced rates of VAT, the contents of audio media are not directly accessible since they require the prior acquisition of special equipment by the consumer.

At present, all Member States tax the purchase of audio discs and cassettes at the standard rate with the sole exception of Italy, which for a transitional period applies a parking rate of 16%, i.e. a higher rate than the minimum standard rate. The optional application of a reduced rate to these goods would consequently put an immediate end to this harmonization of the structure of VAT rates in the Member States. This would give rise to further difficulties and complexities in the application of the current system of VAT and would jeopardize the smooth operation of the single market.

Lastly, it should be pointed out that, in general, the use of VAT to promote a sectoral policy has often proved to be not very effective. The actual impact on the sector concerned is in fact limited although, frequently,

there are secondary effects on other production or distribution sectors. In particular, the move from the standard to the reduced rate for certain goods or services is neither systematically nor completely passed on in the price to the consumer, while the budgetary effect always remains considerable.