A reduced VAT rate

Where
Latvia
When
2012
Who
State Revenue Service
Key objectives of the measure:

To apply a reduced VAT rate to educational literature editions, as well as original literature editions, newspapers, magazines and periodicals (issued at least quarterly) since 1995 according to the Law on Value Added Tax.

Scope of the measure:
National
Main feature of the measure:

The Law on Value Added Tax (1995) stipulates a standard VAT rate of 22% (in 2009, VAT was increased by 3 percentage points from 18% to 21%; in 2011 - from 21 to 22%). A reduced rate of VAT at 12% (since 2011) applies to educational literature editions, as well as original literature editions, newspapers, magazines and periodicals (issued at least quarterly). Until 2009, the reduced VAT rate was 5%, until 2011 - 10%; moreover, it was applied to several other culture industry sectors, such as tourism and all types of book editions.
Moreover, the VAT is not imposed on theatre and circus performances, concerts and events organised by cultural institutions, library services, museums, exhibitions, zoo and botanical gardens, performances for children, performances of amateur arts groups and for charitable purposes; scientific research projects that are financed by public foundations, state or municipal budget or international organisations; remuneration received by the author for work and utilisation thereof, as well as remuneration received by a performer and a phonogram producer for neighbouring rights and utilisation thereof.

Challenges identified in the implementation of this measure:

Due to the rise of a standart VAT from 5% to18% to 21% in 2009, from 21% to 22% in 2011, a reduced VAT rate for educational literature editions, original literature editions, newspapers, magazines and periodicals was increased from 5% until 2009 to 12% in 2011. A reducaed VAT rate is considered to be with a negative impact to the sector and discussions are ongoing about the possible changes in this measure.

Main conclusions of the evaluation of the measure:

Due to the fact that the VAT rate has been increased from 5% at the beginning of 2009 to 22% in 2011, this measure is considered to have a negative impact on the sector. Data showed that due to the increased VAT rate the sector was sharply shrinking and such a measure is still not goving financial benefits to the State budget in long term. Several publishing companies announced insolvency and were closed. Tax payments of the publishing companies in the State budget dropped sharply.

Indicators used to determine impact:
When VAT was increased from 5% to 21% in 2009, the sector experienced a big recession: the turnover of publishing companies dropped by 43%, sales decreased by 60-70%, number of titles published dropped by 22%, number of edited copies - by 33% and book prices increased by 15,2%.
Goal(s) of UNESCO's 2005 Convention
Cultural Domain(s)
Multi-domain
Cultural Value Chain
Distribution
Participation