Tax on ebooks and an unloved games industry: Signs Osborne doesn't get IT

The government's approach to digital issues is consistently confusing...

The government's approach to digital issues is consistently confusing, says's Natasha Lomas.

Q: When is an ebook not a book? A: When HM Treasury says it's not.

I bought Walter Isaacson's biography of Steve Jobs last week. I didn't have to camp outside a book shop to make sure of my copy either - I just ordered it on Amazon and got it delivered wirelessly to my Kindle on the day it launched.

But while this purchase was P&P free, it wasn't VAT free, because in the UK e-books incur VAT. It's an odd state of affairs when you consider HMRC does not collect VAT on books - they are 'zero-rated' in HMRC's parlance.

I'm convinced the ebook I bought is a book. It contains chapters, pages, words. The text is the same as the text in the hardback book - albeit with a few more typos thanks to the Optical Character Recognition book-scanning process that converts paper books to ebooks.

Ebook reader

An ebook reader: The UK government classes ebooks as digital services, rather than books...Creative Commons: Harald Hoyer

The only difference - apart from the 20 per cent price hike thanks to the added VAT - is that instead of being printed with ink on paper, each page of the ebook is dynamically rendered with e-ink on electronic paper.

Yet, factoring in Amazon's current discount on the hardback edition of Isaacson's biography, the Kindle ebook actually cost me more than the dead-tree version (£12.99 versus a discounted £12.50). In all, my purchase has put £2.60 directly into Chancellor George Osborne's coffers.

Can that be right? The EU doesn't think so. In 2009, it extended the definition of a book to cover "books that are on CD, CD-ROMs or any similar physical medium that predominantly reproduces the same information content as printed books" - so that'll be ebooks, then.

Since the EU instituted the change, Spain has lowered the rate of VAT on ebooks to four per cent, and France has voted to lower its rate to 5.5 per cent next year. Yet in the UK, ebooks remain taxed to the VAT max, despite the EU giving member states the ability to reduce rates on them.

What's the UK government doing about this obvious and anachronistic discrepancy between digital and analogue technologies? Nothing so far. (Perhaps the Coalition is too busy squabbling about whether the UK should be in the EU at all?)

A spokesman for the Treasury told me the reason ebooks can't be zero-rated for VAT is they are "classed as the supply of an electronic service", adding that such a classification difference would "need to be addressed at EU level".

If it couldn't be taken to zero, couldn't the rate of tax on ebooks at least be reduced in the UK - as has happened in Spain and is planned in France? The spokesman is unsure - and said he will get back to me. He didn't.

Is the government specifically reviewing the rate of VAT on ebooks? "In general we keep all taxes under review," the spokesman said, - a stock response to such tax rate questions.

No one's going to describe ebooks being subject to VAT as a massive issue. It's irritating, sure, and it gives you the niggling feeling the government doesn't understand digital issues. But ultimately there are bigger technology-related problems for us to worry about, right?

The thing is, ebooks are not the only digital arena where the government is starting to look...