THE Commission "firmly recommends" that VAT on newspapers be reduced from 12.5 per cent to zero as a primary step towards strengthening the indigenous newspaper industry. The reduction should be undertaken "with about delay".
Although the 12.5 per cent VAT rate is well below the standard rate of 21 per cent, it is still the highest in Europe. Newscapers are zero rated in Britain and five other European countries, the commission points out.
The only country with a rate comparable to that in Ireland is Austria, where the VAT rate on newspapers is 10 per cent.
Because Irish sales of British papers represent a tiny proportion of their overall sales, and British sales of Irish papers represent an even smaller proportion of their sales, "the impact of the differing VAT regimes is emphatically to the disadvantage of the Irish publishers".
"In short, Irish newspapers face growing competition from an industry which not only has the advantage of scale but also the advantage of a revenue friendlier VAT regime."
A significant contribution towards reducing the advantages enjoyed by the British papers can be made by scrapping VAT, the commission finds.
The recommendation is made despite recognition it will cost the Exchequer £23 million in lost revenue and constitutes special treatment for a profitable industry. The commission also recognises the pressures from other industries for VAT and other tax reductions.
"However, the commission is convinced that the recommendation is warranted. In reaching this conclusion, the commission has been influenced by . . . the great importance of the survival of a strong, independent, indigenous newspaper industry to the democratic structure of Irish society."
Throughout Europe, the special nature of the newspaper industry `has been recognised in the tax provisions which govern it.
Another factor which has influenced the commission is that "the survival of the Irish newspaper industry depends on its having the financial strength to undertake major investment in the next few years".
It believes an end to VAT would lead to a reduction in the price of Irish newspapers equivalent to the VAT. "Whether or not this occurs, and however UK titles selling in Ireland respond, it is satisfied a zero rate of VAT would contribute significantly to the financial strength of the Irish industry."