A VAT cut on recorded music would give huge boost to markets across Europe, says survey

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Brussels, February 18th, 2003

A new five-country survey indicates that a VAT reduction on sound recordings would give a huge boost to the recorded music market in Europe. The survey, carried out by research agency Martin Hamblin GfK, points to the potential economic and cultural benefits of a VAT reduction on music.

Launched as EU Finance Ministers gather in Brussels for a meeting today, the survey suggests that increased sales would compensate governments for any loss of revenue resulting from a VAT reduction on sound recordings within a period of one to two years. Since pirates don't pay VAT, a measure that leads to a rise in sales of legitimate recordings would also bring in more tax revenue for governments.

The research, commissioned by IFPI, the organisation representing the recording industry worldwide, also confirms consumer enthusiasm for a VAT cut on recorded music. Its findings were welcomed by a Coalition* working for a reduction of VAT on sound recording that includes representatives of authors, composers, performing artists, music publishers, collecting societies, managers and entertainment retailers as well as independent and major record companies.

VAT on sound recordings are currently set at between 16% and 25% while other cultural products such as books, magazines, entrance tickets to cinemas, museums and zoos have rates upwards of 5 per cent. The European Commission is currently reviewing the 6th VAT Directive and is expected to announce any proposal regarding the classification of cultural products before the summer.

Consumer research has been conducted in five countries - Germany UK, Spain, Italy and Sweden - in December 2002. A random sample of consumers in each country was interviewed and their response to a possible reduction in VAT measured.

On average, nearly 60% of consumers aged over 16 would buy more CDs at a substantially lower VAT rate. CD album sales could double across the five countries, with the potential increase ranging from Italy (160%), Spain (130%), Sweden (130%), UK (110%) to Germany (95%).

Findings suggest that the music market, which is currently suffering from declining sales and widespread piracy, would be given an enormous boost by a VAT reduction. The biggest potential increase in sales would come from existing CD buyers. In most cases, consumers said they would buy the same amount again if VAT were reduced significantly.

Moreover, people who had not bought any CDs in the past 12 months said they would be start buying discs if there was a significant VAT reduction. Around one third of people who don't currently buy music said it would encourage them to buy an average of five CDs per year each - a potential 150 million discs.

Entertainment retailers have already confirmed that the benefits of a VAT reduction would be maximised for European consumers, making music more accessible for everybody.

VAT rates on CDs in the European Union currently range across the five countries surveyed from Sweden (25%) to Italy (20%), UK (17.5%), Spain (16%) and Germany (16%). An overwhelming majority - 76% on average - of consumers in these countries agree that VAT should be reduced on recorded music. Many consumers are surprised that music CDs are not classed in the same VAT category as other cultural products such as books, theatre and cinema ticket.

To achieve a reduced rate for recorded music, the European Commission would have to propose adding sound recordings to Annex H of the VAT Directive, which lists all cultural goods and services benefiting from a reduced rate. Any final decision requires a unanimous vote by EU Finance Ministers. A number of EU governments have already expressed the wish to treat sound recordings as cultural goods from a VAT viewpoint.

*The VAT Coalition comprises:

ARTIS GEIE - Groupement Européen représentant les Organismes de Gestion Collective des Droits des Artistes-Interprètes ou Exécutants
EMO - European Music Office
GERA-EUROPE, Global Entertainment Retail Association-Europe
GESAC, European Grouping of Societies of Authors and Composers
ICMP/CIEM, International Confederation of Music Publishers
IFPI, Representing the recording industry worldwide
IMMF, International Music Managers Forum
IMPA, International Music Publishers Association
IMPALA , Independent Music Companies Association

For further information, please contact:
Francine Cunningham, IFPI, Tel: +32 (0)2 511 92 08, francine.cunningham@ifpi.org;