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volume 5
february 2003

Five-country VAT survey: a summary of the main results


  Consumer reaction and response to a hypothetical VAT reduction for music CD's
by IFPI / Martin Hamblin GfK
  On February 18th, 2003, the EU Finance Ministers gathered in Brussels for a meeting on the VAT rates on cultural products. That same day the IFPI, the organisation representing the international recording industry, issued a summary of their research on consumer reactions and responses to a hypothetical VAT reduction for music CD's, aiming to reduce the VAT on sound recordings. Those rates are currently set at between 16% and 25% while other cultural products such as books, magazines, entrance tickets to cinemas, museums and zoos have rates upwards of 5 per cent. The European Commission is currently reviewing the 6th VAT Directive and is expected to announce a proposal regarding the classification of cultural products before the summer. Below we reproduce the scarse figures as used by the IFPI to help their lobby campaign Give Music A Break.
1 Current VAT rates. At the moment the VAT on sound recordings are set at between 16% and 25%. For Germany, Italy, Spain, Sweden, and the United Kingdom the percentages are shown below:
Germany Italy Spain
Sweden United Kingdom
  Diagram 1: VAT rates for Germany, Italy, Spain, Sweden, and the United Kingdom
  Wide-sample consumer research was conducted in those five markets. The surveys captured a random sample of over 16's (over 13's in Italy) and measured consumer reaction and response to a hypothetical reduction in VAT. The main results of the surveys, conducted by Martin-Hamblin GfK in December 2002, are summarised below.
2 Consumers agree overwhelmingly with VAT reduction. Consumers were asked, How do you feel about the idea of VAT being reduced on music CD's? — response measured using a five-point scale. An overwhelming majority of consumers agreed on average across all five markets. Half of consumers agreed strongly in Italy, Spain, Sweden and the United Kingdom, with over one-third agreeing strongly in Germany.
  Diagram 2: Overall agreement for VAT reduction (%)
  (Source: Martin Hamblin GfK, sample 5,000)
3 Surprise about music CD's special status. Many consumers are surprised that music CD's are not classed in the same category as books, theatre and cinema tickets etcetera. Asked specifically How much do you agree or disagree with the statement – books, magazines, newspapers, tickets to theatres, concerts and zoos all have reduced VAT rates because they are cultural goods or services – so do you think that recorded music CD's should be included in this category? again most consumers agree, though even more agree strongly.
  Diagram 3: Overall agreement with statement (%)
  (Source: Martin Hamblin GfK, sample 5,000)
4 Reduced VAT would boost CD sales and could increase tax revenues. Nearly 60% of consumers would buy more CD's at a lower VAT rate. A considerable proportion of consumers would increase their purchasing in every market. The biggest potential increase in sales would come from existing CD buyers as well as those who buy very few disks currently. In most cases consumers said they would buy the same amount again if VAT was reduced significantly. CD album sales could double across the five markets, with the largest potential increase in Italy (160%) and the lowest in Germany (95%).
  Diagram 4: Readiness to buy more CD's after VAT reduction (%) (red: wouldn't change; blue: would buy a few more CD's; pink: would buy somewhat more CD's; yellow: would buy a lot more CD's)
  Source: Martin Hamblin GfK, sample 5,000
  2003 © Soundscapes