Digital downloads such as apps, eBooks, films and MP3s could all see their prices rise next year, under new UK government plans to bring taxes inline with location.
The tax change will apply to downloads of films, music, e-books and apps and is likely to hit firm such as Apple’s iTunes, Google Play and Amazon’s Kindle and App stores .
The change is part of a wider European Union push to ensure taxes are levied in the country where goods and services are consumed rather than where a business has its head office. The proposal to shift rates in this way was first made in 2008.
The UK move is proposed as part comes of Chancellor George Osborne’s Finance Bill (part of this week’s budget) and the change will come into force on 1 January 2015.
Currently download prices include a levy based on taxes in the country where a business is located.
Big web firms have sited offices in Luxembourg so they can charge at tax rates lower than the UK’s 20% VAT.
Closing the loophole could bring in revenues of about £300m in its first year, according to government estimates.
Under the new scheme, music, book and smartphone game downloads are likely to be affected by the change as the UK VAT rate of 20% on those goods is higher than those in Luxembourg where music, film and game downloads have a 15% tax rate and e-books 3%.
In total, about 34,000 firms will be affected by the change, estimates the Office for Budget Responsibility.