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Publishers: Yes vote could see 'fatal' loss of 0% VAT rate

Scotland's £350 million-a-year publishing sector faces a "potentially fatal" rise in the current 0% rate of VAT on books in the event of independence, unless Scottish negotiators are able to maintain the UK's derogation from the tax.

Publishing Scotland, the industry body that represents the bulk of Scotland's 100 or so publishers - most of which are SMEs - has called a special conference with politicians and officials later in the spring, seeking answers on the implications of a Yes vote for the book trade.

Although the European Union imposed a Europe-wide 5% VAT on books under the so-called Sixth Directive, recast in 2006, Scotland shares the UK's 0% rate, permitted as a legacy of pre-EU legislation. Both sides of the independence debate now accept that Scotland would have to negotiate terms of EU membership, but the Scottish Government's White Paper on independence fails to mention the VAT exemption on printed material, or say whether preserving it would be a priority for Scottish negotiators.

Hugh Andrew, chief executive of publisher Birlinn, which incorporates the Polygon, Mercat and John Donald imprints, told the Sunday Herald: "The issue of VAT being applied to books in Scotland and not in the rest of the UK is a matter of huge consequence to the Scottish book trade.

"To create a price differential in a single English-language market would potentially be fatal to the Scottish book trade.

"It also poses potentially huge administrative burdens for publishers and suppliers in servicing a differential tax regime. The Scottish Government cannot give any guarantee that this derogation would be maintained. It will be a matter for negotiation. And without that guarantee, the livelihoods of thousands of Scots writers, publishers, retailers and distributors are at risk."

Timothy Wright, chief executive of Edinburgh University Press, said: "Especially in the export markets which make up 65% of our turnover, losing the exemption from 5% VAT will either make us less profitable or less competitive, That's a choice our competitors in Oxford, Manchester and Liverpool won't have to make.

"The Scottish Government and Culture Secretary Fiona Hyslop often talk up the importance of the Scottish publishing industry. Many of us who work in it would like a public reassurance that her Government would fight hard to retain the EU VAT exemption in the event of independence, along with clarity on other vital questions, such as whether we would remain membership of pan-UK publishing and copyrighting regulators, or have to set up new bodies."

Marion Sinclair, chief executive of Publishing Scotland, said: "If publishers had to factor in the costs of VAT when setting their prices it could make books more expensive, though it would be up to individual publishers as to whether they absorbed the costs or not.

"If there was a rise in book prices as a whole, it could result in decreased production of books, lower revenue for authors and translators, and companies could struggle if sales dropped.

"There would also be the issue of differing VAT rates from the rest of the UK, which would presumably retain their existing VAT arrangements and the potential for loss of competitiveness [with] other parts of the UK and Ireland."

Sinclair said that the industry group was urgently seeking clarification from Scottish civil servants as well as from UK level book bodies, ICAS, and VAT and tax experts including Deloittes. She added: "There is no one widely accepted view on this, apart from the almost universal and consistent message that books and other printed matter ought to benefit from reduced rates of VAT."

She noted that the EU was striving for "tax harmonisation", ending historical exemptions, and was specifically hostile to maintaining the 0% rate in membership negotiations.

She said: "Current EU rules would indicate that VAT on printed books would need to be charged at a minimum of 5%. This is what happened to Croatia last year when it joined the EU. The newly-elected Scottish Government could see this issue as one to fight for, however, but this level of detail is not available to us at present."

A Scottish Government spokesman said: "[The White Paper] Scotland's Future sets out how an independent Scotland would pursue a transition to independent membership based on the EU treaty obligations and provisions that currently apply to Scotland under our present status as part of the UK, and without disrupting Scotland's current fully integrated standing within the legal, economic, institutional, political and social framework of the EU."

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