According to George Osborne's Budget announcement last week, the chancellor has plans to close a loophole that had allowed internet companies to avoid paying British VAT on sales of digital goods. This pending taxation change threatens the future of popular 99p downloads, reports the Sunday Times.
The end to the existing tax rules is expected to raise £300 million in its first year. Technology giants such as Apple and Amazon are currently able to pay minimal VAT charges when selling goods such as e-books, digital music, smartphone apps and games to British buyers from offices abroad, benefiting from a 3 per cent VAT rate rather than paying the standard 20 per cent rate if they were based in the UK.
It is highly probable that the 99p music download will end after the tax crack down, a feature which has been one of the main reasons for flourishing music industry sales. The prices of 99p songs might be pushed up to nearer to £1.20 after the rule change.
Apple's music downloading service is said to have brought in around £1 billion last year in the UK, therefore expectations are that a large proportion of the £300 million extra tax income estimation would come from Apple's iTunes store.
Around 34,000 businesses are expected to be affected by the VAT changes, reports the Telegraph, with around 5,000 of them, including Apple and Amazon, currently not VAT registered in the UK. The tax change is scheduled to be implemented in January 2015.
"Public tolerance for those who do not pay their fair share evaporated long ago," said Osborne in his Budget speech. But might the price increases, if the corporations don't absorb them, result in a big drop in sales volumes and therefore the tax income for the UK treasury?
