EUROPEAN laws prevent the Government from reducing VAT on newspapers to zero, as recommended in the Commission on the Newspaper Industry report, it has emerged. The most newspapers could hope for would be a reduction to 5 per cent.

The Commission's report, which examined issues facing the newspaper industry, recommended the immediate removal of VAT. This would cost the Exchequer Pounds 23 million a year.

However, the Department of Finance has confirmed that the Minister for Finance could only reduce VAT to 5 per cent, which would cost the Exchequer Pounds 13 million. In Britain, newspapers are zero-rated, but this was done prior to EU legislation on the matter.

A spokesman for the National Newspaper of Ireland (NNI), which represents all national newspapers, said it had been aware of the EU legislation. He said five years ago,, the then commissioner on taxation, Ms Christian Scrivener, had been approached on the matter.

He said she had told the NNI that it was within the Irish Government's power to table a motion seeking a derogation on VAT for newspapers. She had said this could be done on the grounds that Ireland suffered "unique levels"

of trans-frontier competition from a country with zero-rated newspapers.

He said the commissioner had told the NNI that she would envisage EU opposition to the move.

"Of course, first we have to persuade the Minister for Finance to do it," he said.

He added that it was within the Government's remit to reduce VAT to 5 per cent and this should be done immediately.

The survival of an independent Irish newspaper market "depends on it having the financial strength to undertake major investment in the next few years". according to the commission. It said it believed that, in most instances, the reduction in VAT would be accompanied by similar cover price reductions.