Adding his voice to the critics, a professor of Media and Communication Policy in Helsinki University says the imposition of VAT is actually not necessary because its fiscal benefits are not big and it is in no one’s interest.
“I don’t see any real reason for this move. The VAT exemption for newspapers is normal practice in most EU countries, and Finland is now going to make an exception to this. Its fiscal benefits are rather small and it is really difficult to see what purpose this is meant to serve”, said Hannu Nieminen, Professor of Media and Communication policy in Helsinki University.
Nieminen added: “if the imposition of a VAT is meant to give a boost to the otherwise stalling Finland’s “information society” strategy and to push both the companies and the readers to move to the online environment, it is badly planned and in all probabilities it will not provide the results hoped for”.
The Finnish Newspapers Association and the Union of Journalists in Finland have both criticized the plan on the grounds that it will lead to small local newspapers folding up and thereby a narrowing down the range of opinion in debate on public affairs.
The unions point out that a VAT on newspaper and magazine subscription would have adverse impact on employment in the media sector ranging from distributors to journalists.
Earlier this month trade unions in the media sector including the Union of Journalists petitioned Finance Minister Jutta Urpilainen urging her to abandon the government’s plans concerning the imposition of the value added tax on newspapers and magazine subscribers.
“It would be impossible for newspapers and magazines to transfer such large extra costs to the subscription fees without it having an impact on circulation revenues. This would also in turn have direct impact on advertising revenues thereby driving newspaper into financial difficulties”, the trade unions said in their petition.
The Finnish government says it is in need of nearly 9 billion Euros to plug a hole in the budget. The planned tax of 9 per cent value-added tax would bring extra 83 million Euros revenue to the government’s coffers.
The proposed tax will take effect in the beginning of next year in spite of the storm of protests from the unions and employers.
“What this shows, however, is that the traditional consensus in Finnish media and communication policy seems to be over, and that the industry and Government strongly disagree on some principal matters. It is difficult to see who is beneficiary here – the new VAT does not seem to serve anybody’s interest”, Nieminen said in an interview.
The ensuing job losses will have ripple effects in other sectors. State-owned postal service company, Itella has just announced that an introduction of VAT in the newspaper sector would cause the company to shed jobs.
Newspapers and magazines buy distribution services from Itella and if subscription falls as a result of the nine per cent increase in VAT, the company estimates that in the worst case scenario, it would shed up to 2000 jobs.
Workers in the paper industry have also raised concerns that a VAT increase in the print media would affect jobs in their sector.
Over 60 per cent of production in the Finnish paper sector goes for use in print media and book printing, according to the Finnish Forest Industries Federation.
Finance minister Jutta Urpilainen says that media houses should also be prepared to dip into their profits as their contribution to the government’s efforts to reduce the budget deficits.
However, says Nieminen: “ it is possible that the industry could absorb the tax without much difficulty but, for some papers, the tax might also mean that they will concentrate more on developing their online publishing and leave the print papers to suffer”.
According to Nieminen, the introduction of VAT for the print media was planned as part of a wider reform of taxation in order to level the tax base and, it seemed to be “the logic of the Ministry of Finance” that the exemption of the press from VAT was an anomaly which should be there – although it is still applied in many EU countries.
“It is a surprise that this government, consisting of SDP and Kokoomus (the National Coalition Party), would approve the plan – it does not make any sense”, said Nieminen.