Imposition of GST in the publishing industry can curb piracy

While digitisation has paved the pathway for an environment friendly, economical and easily accessible network for sharing the written word, the declining publishing industry might not see digitisation in the same light. Adding fuel to the fire is the implementation of the Goods and Services Tax (GST) that as of now, is in dire need of clarifications. This article outlines the woes of the publishing industry with reference to India’s biggest indirect tax reform and how the levy of GST could help curb written word piracy.

As per the current tax status, the Goods and Services Tax is not applicable on all kinds of printed books. While this is a great initiative to encourage the circulation of books across the country, especially in those areas with negligible digital penetration, this exemption is more or less beneficial to the reader and not the publication.

Books might be exempt from GST but the materials that come together to make the book are not exempt. As such the different kinds of paper, paper pulp, carton boxes, glue and other products that are directly used for the production of books attract GST between the slabs of 12% to 18%. This GST is borne by the publisher but cannot be claimed as the circle ends here and the sale of books is exempt from GST. This means the publisher cannot claim ITC because GST is exempt in this scenario.

Let’s illustrate this scenario with an example.

A publisher buys raw materials for printing of a book for ₹1000 will be required to pay 18% GST on purchase. This means the raw material will cost ₹1180. Once the book is manufactured and is ready for sale, it will be priced according to the current market evaluation. Let’s say it is priced at ₹2000. Because this book is exempt from GST, the additional cost of ₹180 will be paid by the publisher as they cannot claim input tax credit on an exempt product. So if the publisher were to earn say ₹500 from the book (minus royalties, utilities etc), they would now make ₹320 on the book. This system disrupts an otherwise balanced indirect tax payment by increasing the liability of the publisher.

What can be done to rectify this situation?

Instead of exempting books from the Goods and Services Tax, the GSTN could move books as a category under the slab of zero rate or 5% GST. If the books are zero rated, it means they are not exempt. This allows the publisher to claim input tax credit and does not disrupt the balance of indirect tax payments.

If books are charged at a GST rate of 5%, not only will it solve the problem of additional cost to the publisher, there is also a high possibility of bringing piracy under control or successfully curbing the issue. How? The entire mechanism of the Goods and Services Tax works on showing balance of credit. A taxable person can claim input tax credit under the GST framework only if the credits match with the amount of GST paid by the recipient.

Let’s illustrate with another example. If a taxable person claims input tax credit worth X amount, that amount should have been paid by all taxpayers who purchased the book and paid the prescribed GST.

If an additional cost is not borne by the publisher, it could actually help curb the leakage of data which ultimately leads to the publishing of millions of pirate copies of books. Books, if brought under the radar of the Goods and Services Tax (either at minimal or zero rate), could help untangle an otherwise disrupted system in the publishing industry.