George Osborne’s latest budget could spell an end to 99p song downloads by closing a tax loophole that meant consumers were paying VAT at very low foreign rates on online purchases of books, music and apps.
The chancellor will bring in new laws making sure that internet downloads are taxed in the country where they are purchased, meaning web firms such as Amazon and Apple will have to charge the UK’s 20% rate of VAT. At the moment they are allowed to sell digital downloads through countries such as Luxembourg, where the tax rate is as low as 3%.
The budget document said: “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.”
Official estimates suggest the move could raise an extra £300m for the Treasury. Online retailers could pass on those costs to consumers in the form of higher prices.
Research by Greenwich Consulting previously has suggested Britain could have financed the Olympic Games from the VAT it will have lost on the sales of digital services between 2008 and 2014. In 2012 it found that the uk was losing more than €2bn (£1.6bn) a year in VAT on digital services.
Some high street bosses have criticised the existing laws for giving online retailers an unfair price advantage over those who sell physical goods in the uk.
In last week’s budget Osborne also outlined plans to crack down on corporation tax avoidance, pledging his “full support” to reforms being drafted by the Organisation of Economic Cooperation and Development (OECD).