THE on-line battle for ever- cheaper CDs and DVDs took another competitive turn last night as Tesco discovered a legal loophole allowing it to sell music without charging VAT.
In a blow to its rivals in the run-up to Christmas, Tesco has added an offshoot to its on-line shopping site called Tesco Jersey. The site will sell chart CDs and DVDs from the Channel Islands without VAT at source.
As long as consumers buy each disc separately and spend less than 18 a package, Customs and Excise does not impose import VAT.
The Tesco.com director, John Paul O’Reilly, said prices for CDs and DVDs on the Jersey site were on average 10 per cent lower than on the firm’s main sites.
Mr O’Reilly said: "Tesco Jersey offers shoppers more choice. Shoppers can now choose to pay less for chart CDs and DVDs through Tesco Jersey or still buy goods from our existing home entertainment channel through Tesco Extra on-line.
"The service allows us to cut prices and pass on even more savings to customers and we think it will be really popular in the run-up to Christmas. Many other on-line retailers such as Amazon already run operations out of Jersey so we developed our site to make sure Tesco.com shoppers weren’t losing out."
The launch is the latest in a long series of on-line initiatives aimed at enticing back the consumer to the ailing CD market.
According to the International Music Industry Federation sales of recorded music began to fall in 2001, and dropped 7 per cent in 2002, which equates to 250 million fewer albums. The decline continued last year, with sales sliding another 11 per cent.
Analysts predict the slide will continue as illegal internet downloading and legitimate services such as Apple Computer Inc’s iTunes grow.
Since the iPod’s release in November 2001, Apple has sold more than 2.8 million of the devices. Celebrities thought to own them include the pop singer Robbie Williams, the England football captain David Beckham and the rap music star P Diddy.
In June, Apple launched its iTunes service in the UK, offering more than 700,000 songs from artists such as the Pixies, the Darkness, PJ Harvey, Jamie Cullum and George Michael, which users can preview or buy and download.
Tesco says only best-sellers are available on the Jersey site with all chart CDs, for instance, priced at 8.99 including delivery. This compares to the normal on-line price, which is between 8.39 and 8.89 plus up to 1.60 for delivery.
The supermarket is not breaking any rules by importing CDs from Jersey and it is a move which is bound to spark a new on-line price war. Industry experts say the only loser is the Treasury which will not get the 17.5 per cent VAT usually imposed on CDs and DVDs.
Last night Customs and Excise said it was aware of the loophole and was reviewing it.
A spokeswoman said: "We are fairly comfortable with it. It is not just a UK thing. Most European countries have a similar tax relief on goods that have low value."
If a customer does accidentally buy goods worth over 18 they will be liable to pay VAT which the Post Office will be responsible for collecting.
Stuart McHugh, editor of the Scottish music magazine isthismusic, said he was broadly in favour of on-line shopping as long as it did not drive the smaller music retailer out of business.
But he added: "The problem with a lot of on-line retailers is that by the time you have added in postage and delivery you are reaching a price that is close to what one would pay on the high street anyway."