Taxing times ahead: Czech print media faces VAT upheaval
A storm is brewing in the world of print media. The Czech Republic is at the centre of the storm, with a proposed change to the value-added tax (VAT) on print publications. This seemingly innocuous move could have far-reaching implications for the industry, the state budget and the readership at large.
The proposed VAT adjustments for print media are expected to generate up to CZK 200 million (€8.5 million) for the state budget. However, the newspaper market is shrinking, with a year-on-year decline of 14% in March. Revenue from the sale of newspapers, based on estimates of their sold circulation, is currently around CZK 2.5 billion (€105 million) a year.
The total sold circulation of newspapers is gradually decreasing, on average by 10% year-on-year (16% during the COVID-19 pandemic). This leads to a decrease in revenue from newspaper sales, but not at the same rate as the decrease in sold circulation. Publishers can offset this by increasing the selling price, which has been increased twice in the last twelve months for newspapers.
If newspapers were reclassified to the proposed basic VAT rate of 21%, which is double the current rate, rough calculations suggest that state revenues would increase by CZK 275 million. However, this is based on current sales results, which are declining every year. This year's decline, based on March results, is 14%, reducing the contribution from the increased VAT to around CZK 236 million.
The government's proposal to reclassify newspapers to a 21% VAT rate has raised concerns among foreign publishers' associations. The European newspaper and magazine publishers' associations, EMMA and ENPA, are urging the Czech government to reconsider the VAT increase for newspapers to 21% and instead consider reclassifying all printed periodicals (newspapers and magazines) to a zero VAT rate, as proposed for books.
"Should these new rates be adopted, the Czech Republic would have the highest VAT rate applicable to press publications in the EU which we deem problematic notably when many other Member States in the EU apply 0% or 5% VAT rates to press publications," says ENPA.
The government's intention to divide print media into three VAT tiers is not well understood by the Czech public, according to a survey by STEM/MARK that focused on perceptions of the government's proposed package of measures to stabilise public finances. The majority of citizens agree that the increase threatens publishing, especially in the case of newspapers, and that the VAT rate should be the same for books, newspapers and magazines.