UK bill to charge 20% VAT for digital purchases

Mar 24, 2014
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UK bill to charge 20% VAT for digital purchases

Online retailers and digital content providers might soon be facing some rather heavy taxes if Goerge Osborne gets his way. Under a new law that will cover intra-EU business to consumer (B2C) taxation, such services will be taxed based on buyer's location, which in the UK means a 20 percent VAT.

This law is supposed to close a loophole that allowed retailers to dance around taxes by basing the transaction on a country with a very low tax rate. For example, some course their digital content from Luxembourg, which taxes only 3 percent of products. This law, then, turns the tables on retailers by using the consumer's location as the point of reference instead.

The proposed law comes from the UK, which might be in dire need of such updated taxation laws. Based on research done in 2012 by firm Greenwich Consulting, the country might have been losing as much as 2 billion euros, roughly $2.8 billion, in value added taxes or VAT on digital services per year. Perhaps to drive home the painful fact, the firm claims that the UK could have comfortably financed the Olympic Games using the VAT it wasn't able to claim between 2008 and 2014.

Unfortunately for consumers, this law could translate into higher prices for digital products. Going around his current loophole is how retailers are able to offer $0.99 songs. This is seen by business as an unfair advantage that digital goods retailers have over physical counterparts. It is highly likely that retailers will pass the added cost to buyers in the end. Although Apple and Amazon have been namedropped, it is likely to cover others such as Google Play Store or even Kobo as well.

The revelation about this new law almost passed by unnoticed. Osborne aims to have this law take effect starting January 1, 2015. If it pushes through unhindered, the UK is expected to raise as much as 300 million GBP, around $494 million, via the new VAT source alone.

SOURCE: The Guardian


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