A special 9-percent VAT rate today applies to books, educational workbooks and periodicals, except publications concentrating on advertising or including erotic and pornographic material that are subject to the standard 20-percent VAT rate. The aim of the reduced rate is to support the publication of traditional books and improve availability.

The government's activity program for 2019-2023 prescribes analyzing and prescribing a lower VAT rate also for e-books and e-periodicals.

The topic is the responsibility of Minister of Finance Martin Helme who, according to a memo to be presented to the cabinet, is not in favor of the tax exemption.

Helme describes the matter as a political decision, which is why the ministry has not deemed it necessary to commission an outside analysis.

"Because the object of tax is basically an electronic service only parts of which would be subject to a lower tax rate, it would make for a complicated regulation. Such an object of taxation would increase the risk of fraud and add to tax administration costs. At the same time, it would not have a significant effect on the price of the service (e-publications)," Helme reasoned.

The minister also pointed out that even with the standard tax rate, e-publications are cheaper than their print counterparts because of smaller sales expenses. Helme added that different tax rates for print and electronic publications do not distort competition because the products are not competing with each other and reading e-publications requires a device.

Helme said that a lower tax rate for e-publications would add to businesses' administrative burden as e-periodicals could only be taxed using the lower rate insofar as they reflect the content of print papers or magazines, without interactive content, such as videos, commercials and music. Such value added would constitute electronic services that are taxed with the standard rate.

Introducing the change would also take a bite of around €2 million out of VAT receipt.

"Our proposal is not to lay down a special VAT rate for e-publications," Helme said in summary.

Lukas: different tax rate not justified in case of similar content

Minister of Culture Tõnis Lukas disagrees. His memorandum supports a reduced 9-percent rate for electronic publications.

The ministry finds that the aim of the exemption is to support the publication of books and periodicals, boost their quality and availability. Lukas also suggests that European Court of Justice practice suggests the aim of a lower VAT rate is to support erudition.

Lukas writes that while the way people read books and periodicals has changed considerably in the digital age, the goal of getting people to read more and supporting the publication of works remains the same, which is why applying different tax rates to the same content is not sensible.

Because the Estonian journalism and media market has not grown in the past decade, with unequal tax policy for digital and non-digital publications contributing to the situations, Lukas believes digital publications and content should also be subject to a lower tax rate.

Unlike the finance ministry, the Ministry of Culture finds that defining digital journalism as a tax object is not difficult as tax administrators can identify journalistic publications with ease and they most often identify as such themselves.

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