Wave Goodbye to 99p Downloads as UK Digital Sales Tax Loophole is Closed

By Gerald Lynch on at

Picking up a new eBook or MP3 may be about to get a fair whack more expensive, as Chancellor George Osbourne has moved in his latest budget to close a tax loophole that was allowing digital retailers to pay low foreign VAT rates on eBook, MP3 and app sales.

Currently, many digital web sales are sold through foreign countries, such as Luxembourg, where the tax rate is as low as three per cent. The small print of Osbourne's latest budget will see this loophole closed: UK downloads will be taxed in the country where the purchase is made, meaning the likes of Apple and Amazon will have to charge the 20 per cent VAT rate on sales through their services in the UK. This will almost certainly drive prices up.

While it'll be a strain on our wallets, brick-and-mortar shop owners will likely breath a sigh of relief, having always had to face similar charges. If digital media sales prices do indeed rise with the VAT increase, the gap between a physical sales price and a digital one may close, luring consumers back to shops and possibly acting as a shot in the arm for failing high-street businesses. The new rule will come into effect from January 1st 2015, so probably best not to pass on those 99p deals for the next couple of months.[Guardian]