Sweden’s digital tax falls from 25% to 6% in July. What will Storytel do with its VAT windfall?

The Swedish government has finally announced its digital VAT plans, and as from July 1 digital services like ebooks, audiobooks and news will be subject to just 6% VAT, instead of the current 25%.

The logical next step, one might think, would be for prices to fall in line with the VAT reduction, but as Sweden’s Breakit argues, that’s not the only option.

With digital subscription services leading a 4.9% growth in book sales in Sweden in 2018 the question of what next for digital VAT is an important one.

Breakit calculates Storytel stands to gain around SEK 75 million ($8 million) annually based on current receipts. But that’s a debatable calculation based on variable scenarios.

As Breakit sees it there are three choices for Storytel:

Reduce the subscription fee in line with the VAT reduction. A monthly subscription currently at SEK 169 would fall to SEK 145 under the new VAT system. The benefit would be mainly to consumers, but might attract more subscribers.

Another option, says Breakit, is to maintain the current price and pay improved royalties to publishers. That would perhaps deter some subscribers, but might encourage more publishers to come on board with content, which in turn would make the service more appealing.

Or, says Breakit, Storytel could just pocket the excess cash for its expansion plans.

Storytel CEO Jonas Tellander isn’t sharing his thoughts yet, but safe to say all options are being carefully weighed.

But perhaps the defining factor in what happens next will be what Storytel sees the rival operators as planning to do next.

As the biggest digital player in Sweden Storytel can call the shots to an extent, but choosing not to drop prices for consumers if the rival players did so could potentially mean an unhealthy loss of market share.

My guess is Storytel will value consumer trust above all other considerations and will drop the subscription price in line with the lowered VAT.

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