The Italian executive announced plans to double the rate of VAT applied to Sky from the current level of 10%. Economy Minister Giulio Tremonti explained that the measure was intended to bring Italy in line with EU legislation.
In fact, satellite television services in Italy are offered by three providers: Murdoch's Sky, the satellite branch of Mediaset (Berlusconi's group) and the satellite branch of RAI (the public provider). Currently, Mediaset faces a VAT rate of 20%, double that of Sky. European rules forbid the application of different rates of taxation to the same services.
Tremonti used the argument that Italy was simply trying to comply with EU rules to justify what is seen by many as a highly political move. Indeed, the European Commission called on the Italian authorities to bring an end to such discrimination. Indeed, the EU executive had already reached an agreement to review the rates with the previous government, led by former Commission President Romano Prodi.
However, what Tremonti did not say is that the EU never asked for taxes to be increased, but simply for them to be harmonised. "We request VAT harmonisation for the same services. But it is up to the government to decide whether to apply a 10% or 20% VAT rate," the Commission's spokesperson on fiscal issues made clear.
At present, raising taxes flatly contradicts the official EU line, based on cutting taxes and providing incentives to help EU countries tackle the financial and economic crisis.
Sky, for its part, is insisting that the Commission requested harmonising at 10%. Whether this is true or not, Berlusconi’s government could have lowered taxes on the other players instead of raising them for Murdoch's TV. The government argues that decreasing taxes on Mediaset satellite services would have triggered even more controversy.
However, this argument does not take into account the Italian media landscape, which is essentially dominated by two players operating not via satellite, but free-to-air services offered through radio frequencies: Mediaset and RAI, both directly or indirectly controlled by Berlusconi. The prime minister owns Mediaset and exercises a strong influence on RAI, whose management mirrors political power.
Sky represents the only real alternative to this duopoly and primarily disturbs Mediaset, because it seeks to attact the same public and advertising clients.
The complaint to the Commission over the lack of harmonised VAT rates was sent by Mediaset itself. If the government decided to cut taxes on Mediaset and RAI satellite services, this would have had a minimal effect on Sky, which competes against the big free-to-air channels. By increasing taxes on Sky instead, Berlusconi appears to be directly attacking one of the main challengers to his television empire.
Many Italians are unhappy with the move, not only for political reasons but also because the extra tax burden will be passed on to them, raising the cost of watching football, one of Sky Italia's most beloved services.
