NEWS & ANALYSIS

Scrap VAT on books - DA

Dion George says the cost would be nominal and the gains immeasurable

Breaking the barriers to reading: The DA's proposal to scrap VAT on books

Introduction

Good education opens the doors to reaching for dreams and using opportunities to the full. But only a small minority of South Africans receive the kind of education that opens these doors. There are many reasons for this, but the cost of books, which puts reading far out of reach to most South Africans, is undoubtedly one.

The DA today presents a proposal for substantially reducing the cost of books - one of the most important components of education. We believe this will increase opportunity and expand access.

Under current South African legislation, all books are subject to the standard 14% rate of value added tax (VAT). The Democratic Alliance (DA) believes that a tax on books is a tax on learning, knowledge and literacy. Right now, we need to prioritise measures to promote literacy and education, and we believe that a zero-rating on books would be a cost-effective measure to contribute towards this.

The Context

South Africa lags behind the rest of the world in our tax policy on books. In numerous countries - including Ireland, Norway, the United Kingdom, Brazil, Mexico, the Philippines, Australia, Ghana, and Kenya - no tax is charged on books at all. Elsewhere, the debate centres on just how low the reduced rate should be, rather than whether the full rate should still apply. Countries that have adopted reduced rates of tax on books include Sweden, Finland, Iceland, China, Austria, France, Germany, Belgium, Cyprus, the Czech Republic, Greece, Hungary, the Netherlands, Spain, Slovakia, Romania, Slovenia, and Malta. Most of these countries adopt a far reduced tax rating on books in the range of 4-5%. Comparative research has also showed quite clearly that reducing the cost of books, by reducing VAT charged on them, has a powerful effect on purchase of books and readership.

A debate over South Africa's tax on books fizzled out in 2006, after a short-lived government review of our tax law was not completed. The issue, as a matter for policy debate, has since remained dormant, and we are stuck with a mindset that books are somehow the purview of the elite or the wealthy. This argument could not be further from the truth.

The Options

There are three practical options on the table: a zero VAT rate ('zero-rating'), a VAT exemption or a reduced rate.

The distinction between zero rating and exemptions is a matter of whether a vendor can recover input tax on expenses incurred in the course of making the book sale. Reduced VAT rates are commonplace in most developed countries.

There are also a number of options in terms of the nature of books being subjected to VAT reforms. One option is to include all books, including magazines, e-books and newspapers. A more narrow alternative approach may be to target only those books that are directly used in educational institutions.

The DA estimates that the loss to the fiscus would range between R169m and R274m, depending on which of these options were to be chosen.

But the benefits would be enormous. Zero-rated VAT on textbooks will ease access to education and result in the opportunity for citizens to be more productive, which will in turn contribute relatively more to the tax pool. This forms part of a virtuous cycle that will boost our economy.

What our proposal means in practical terms

Were books to be zero-rated, a library making a purchase order of 3,000 new books could purchase roughly 400 additional books, and removing VAT on books would thus have significant,  positive knock-on effects for those South Africans relying on libraries as a source of books. Because of the regressive nature of VAT as a tax, removing VAT on any item also acts disproportionately to benefit low income citizens. This is why VAT is zero-rated on many basic foodstuffs in South Africa. For precisely the same reason, removing VAT on books would have a particularly powerful impact on access to books for poorer South Africans.

The DA's proposal

The DA's position is that steps ought to be taken right away to zero-rate all books, and that zero rating should in addition, in future, be extended to all newspapers and magazines. We believe that the costs incurred to the fiscus are insignificant in comparison to the boost to literacy and economic activity that would result.

The VAT system already successfully manages dual rates of 0% and 14% and it is unlikely that the system would be unable to manage an additional zero-rated category. Zero-rating is preferable to VAT exemption because vendors ought to be able to claim input VAT on a book - as is the case with basic foodstuff items that are currently zero-rated. It is also preferable to a reduced rating because we already know that our VAT system can successfully administer two rates (0% and 14%) and the introduction of a third rate, reduced for books, may unnecessarily complicate VAT administration.

Conclusion

Education and the promotion of literacy are powerful weapons in the fight to eradicate poverty. Information is not only a basic requirement for democracy to flourish through the exchange of ideas, it also opens the door to economic participation.

The debate on tax applicable to books, newspapers and magazines is international and ongoing. Tax on books, newspapers and magazines increases the cost of freedom of expression and the acquisition of knowledge. In our pursuit of an Open Opportunity Society, where reading serves as a powerful mechanism for individuals to achieve their full potential, the DA supports the ideal of no tax on books and we want a public debate on this matter on behalf of all South Africans who cherish universal access to the written word.

We need to understand that, for the same pro-development, pro-poor reasons that bread, milk and vegetables are zero-rated, we need to zero-rate basic learning material too.

South Africans crave access to opportunity and government must provide these opportunities. It can do this by making information more affordable, and therefore more available, to more people. Evidence strongly supports the view that a lower tax on books will do this.

Parliament now has the power to amend the national budget and the people have an opportunity to be heard on how the public financial model can work to the benefit of all South Africans. We need an immediate reduction of VAT on books and the DA will lead the way.

Statement issued by Dr Dion George, MP, Democratic Alliance shadow minister of finance, January 27 2010

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