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Figure 22: Transformation strategy for the Australian book industry
Integrating the book supply chain
RECOMMENDATION 1: Book industry collaboration
The Australian book industry faces significant challenges in securing and maintaining a position in the English language global market. While there are both opportunities and obstacles ahead for Australian authors, publishers, printers and retailers; the sustainability of the industry as a whole will be significantly enhanced by these subsectors working together to achieve mutually beneficial goals.
This principle was recognised in 2001 through an industry review (Ad rem – The Australian book industry: Challenges and opportunities) conducted on behalf of the Australian Publishers Association and the Printing Industries Association of Australia. The Ad rem report argued that a joint industry approach to supply chain reform would dramatically lower the overall cost structure of the industry, to an estimated value of $155 million. Despite some degree of industry and government endorsement of this recommendation, in the decade since the release of the report no action has been taken to form an overarching collaborative body.
The book industries in both the United States and United Kingdom have established collaborative industry bodies that are tasked with improving the efficiency of the book supply chains in those markets. The principal functions of both bodies include development, maintenance and promotion of standards; certification and accreditation schemes; and commissioning research to address knowledge gaps and inform decision making.
This report provides the context for understanding the issues facing an industry in transition. It proposes a suite of recommendations, some of which address the needs of individual subsectors and others which target whole-of-industry reforms. The industry needs a collaborative forum which is empowered to communicate directly with government and mandated to implement industry wide reforms. It is essential that this body becomes a permanent forum with the longevity and authority to act on behalf of the entire book industry, while recognising and supporting the role of specific sector organisations such the Australian Society of Authors, the Australian Literary Agents Association, the Australian Publishers Association, the Small Press Underground Network, the Australian Booksellers Association and the Printing Industries Association of Australia.
The establishment of a body with representation from all sectors within the Australian book value chain – the Book Industry Collaborative Council – will provide such a forum. While not limited to implementation of reforms identified in the BISG recommendations, the council must be guided by a clear priority agenda that links to the recommendations in this report.
This agenda should include:
1 efficiency reforms for the book distribution network within Australia, including industry standards (as a matter of immediate urgency)
2 maximising export opportunities for Australian book producers
3 coordination of industry skills development strategies and implementation
4 development of funding models which support Australian literature
5 facilitation of research initiatives
6 a body for centralising book industry consultation with government and other bodies.
That the Australian Government establish a Book Industry Collaborative Council with membership from all parts of the book value chain, which is tasked with implementing the industry reform priorities identified by the Book Industry Strategy Group and other issues as they emerge.
Competing effectively in the global book market
RECOMMENDATION 2: GST and price
Australian book retailers are required by law to impose the 10 per cent goods and services tax (GST) on the price of books sold. This, however, is not the case for overseas online retailers who sell books in the Australian market with a total value of less than $1,000. This differential tax treatment of books clearly favours the online retailer and creates a competitive disadvantage for the Australian retailer.
In many OECD countries, due to their educational and cultural value, books are either free of value-added tax (VAT) or subject to a reduced rate (see Table 6). The Australian book industry believes there is a case for the Australian Government to recognise the educational and cultural value of books and consider the level of GST applied to books.
When the VAT was introduced in the United Kingdom in 1973, books, newspapers and magazines were specifically exempted because of their contribution to education, culture, personal development and literacy as a social good.
Of nations in the OECD, eight countries impose their own standard rate of GST or VAT on books: Australia, Canada, Chile, Denmark, Israel, Japan, Mexico and New Zealand. Twenty impose a reduced rate. France, for example, has a VAT of 19.6 per cent and a rate of 5.5.per cent for books, except if they are pornographic or incite violence. In Germany, the standard VAT rate of 19 per cent falls to 7 per cent for books, in the Netherlands (19 per cent) to 6 per cent, in Belgium (21 per cent) to 6 per cent, in Italy (20 per cent) to 4 per cent for most books and in Spain (18 per cent) to 4 per cent. Four nations impose a zero rate: Ireland, the Republic of Korea, Norway and the United Kingdom.
The United States situation is complex because a variety of taxes are imposed by individual states.
For most goods and commodities – food, fuel, low-cost clothing, toiletries – immediate availability at point of sale is decisive. This is not true of books, and is of decreasing relevance with newspapers and magazines. Booksellers report that potential customers enter their shops, photograph publication details of books on their iPhones so that they can order them, VAT- and GST-free, by computer, either as a print book (with the benefit of subsidised postage) or downloaded as an ebook. More sensitive bookbuyers gain information directly from the web without hurting the feelings of booksellers. Technologically advanced customers, whether sensitive or not, may use freely available software such as RedLaser and Booko to scan the ISBN of the book into their iPhone or Android and check price and availability from online suppliers (domestic or international) and often find suppliers with a more competitive price than the stock-holding store offering a range of titles.
Table 6: GST and VAT on books in the OECD (selected countries)
a In Canada the total harmonised sales tax (HST) is the sum of the national GST of 5 per cent (normal rate) plus provincial sales tax (PST – which varies between 0 and 10 per cent). There is a point of sales rebate for books of the PST portion in Ontario, British Columbia, Nova Scotia, New Brunswick, and Newfoundland and Labrador.
b The higher rate is for books that have a pornographic character or which may incite violence.
c Source: New Zealand Inland Revenue Department website.
d The data provided two rates for books. The circumstance in which each rate applies is not made clear in the data.
Sources: OECD 2010 and European Commission 2011.
Some commodities – shoes, designer clothes, jewellery – are being bought online, but they attract VAT or its equivalent in Europe at point of sale. In no product area is the gap so wide – 30 per cent (20 + 10) as in the case of books imported from the United Kingdom.
Implausible as it sounds, ordering an Australian book from the United Kingdom, online, can be cheaper than buying it from a local bookshop. A striking example is The Cook’s Companion (Viking/Penguin) by Stephanie Alexander: the hardcover edition sells in Australian bookshops for $130.00. The Book Depository in the United Kingdom offers it, airmail postage included, for $92.83. If Australia imposed 10 per cent GST on books ordered online from overseas, then the price to an Australian purchaser would be about $101.25 – still a substantial margin against the local bookseller.
The issue of whether books should be exempt from GST was hotly debated in Australia at the time of the announcement of the tax reform package in August 1998. The government of the day resisted claims for the exemption of books from GST but, in return, developed a compensation package in the form of a book industry assistance plan to help the industry adjust to the new tax environment.
The plan primarily focused on compensation for the increase in the cost of books used specifically for educational purposes, but also provided some direct support to the book industry. It committed $240 million over four years, beginning in in 2000–01 ($60 million per annum), and included:
Table 7: Thresholds in other countries