Tax Cut = More CD Sales?

Respondents to our weekly Stereophile polls often tell us they would buy more CDs if the prices weren't so high. So would their European counterparts, according to a survey released February 18 by the International Federation of Phonograph Industries (IFPI). Prices for recorded music are even higher in Europe than they are in the US.

A reduction in value-added taxes (VAT) on music recordings would reduce total retail costs and boost music sales by 95% to 160% in the five countries surveyed—Germany, Italy, Spain, Sweden, and the UK. Increased sales would offset losses to governments from VAT reductions, the survey's authors informed European Union finance ministers. VAT cuts would also remove some incentive for piracy by making legitimate sales more attractive, they claim.

The survey found that 60% of consumers over the age of 16 would buy more CDs "at a substantially lower VAT rate." Many surveyed said their music purchases might double if VAT were reduced, and one-third of those who hadn't purchased any music in the past year said a VAT reduction would encourage them to start again. Most (76%) consumers in the five countries agreed that VAT should be lowered.

VAT on sound recordings varies from 16% to 25% in the European Union, compared to an average of 5% for books. Music piracy is rampant in Italy, Spain, Russia, and elsewhere, the IFPI reports. Music sales are in decline in most countries; a February 27 report from Germany's Phonographic Association stated that sales dropped 11% in that country in 2002, the fifth year of a continuing decline. Last year, 486 million blank recordable CDs were sold in Germany, compared to 168 million full-length music recordings, according to association spokesman Gerd Gebhardt.

The EU survey was commissioned by the IFPI and presented to EU finance ministers at the start of a meeting in Brussels, where part of the agenda was to examine the 6th VAT Directive, with the possibility of reclassifying CDs in a less exorbitant category. The survey's findings were welcomed by a coalition of groups working to reduce VAT on recordings in the EU, including songwriters, composers, artists, publishers, record labels, and retailers. Any change in VAT would require a unanimous vote by EU ministers.

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