For digital media lovers in the UK, the 99p MP3 download or cheap eBook may soon be a thing of the past, thanks to George Osborne’s 2014 budget.
The Chancellor is looking to close a loophole used by the likes of Apple and Amazon to ensure that minimal tax is added to digital content sold here in the UK, including music, movies, eBooks and more. It essentially means that the price of digital content will move closer to that of physical media, making it less of an attractive prospect for smartphone and tablet users.
At present, companies such as Apple don’t have to use the VAT rate applicable to the country it sells a digital product in. It’s common for these companies to sell their digital wares through countries such as Luxembourg, which have tax rates as low as 3%. This in turn allows MP3s to be sold at tantalising prices such as 99p, but now this loophole is to be closed in the UK and companies will be forced to apply the standard 20% VAT rate to their products, which will in turn cause the price of digital content to rise.
We wouldn’t encourage anybody to read all the way through the Budget (unless you really want to, of course), but tech fans may want to inspect P78 which reads, “As announced at budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the member state in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue.”
The changes will come into play on January 1st 2015, so we’ve a way to go yet and companies have time to come up with a pricing strategy that’s in line with the new rulings. Whether the likes of Amazon, Apple and other digital media giants will lower the cost of the content itself in order to keep the overall tax-inclusive price the same as we’re used to will remain to be seen, but it’s likely that prices will rise.
Whilst the move will not be a good one for the consumer, it’s estimated that the UK has been losing out on millions in tax from digital content due to the loophole used by so many big companies. Research firm Greenwich Consulting even claimed that the UK has been losing out on £1.6 billion a year in tax from digital media sales between 2008 and 2014, which if totaled would be enough to finance the entire 2012 Olympic Games.
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