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App Store, Google Play, and other digital download prices may rise because of VAT changes

News by Andrew Kameka on Monday March 24, 2014.

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The price that UK residents pay to download their favorite apps or songs may increase next year due to changes made in the way that Value Added Tax (VAT) is calculated on digital sales. A bill that may go into effect January 1, 2015 would tax digital and virtual purchases according to the VAT rates in the country it is purchased. Previously, companies were allowed to exploit a loophole that set the price in countries like Luxembourg where the rate is considerably lower. If legislators adopt the bill as law, retailers will instead pay based on the buyer's home market. The tax rate could increase from 3 percent to 20 percent, reports The Guardian.

A tax increase of this nature is only a few pence per transaction, but the total volume of purchases of digital content means those small increases would add up to a significant amount of money. Estimates in 2012 suggested that the British government missed out on GBP 1.6 billion (US $2.6 billion) due to the lower tax rates set by digital content sellers. Even if someone believes that those estimates are too high, a conservative estimate would still suggest that several hundred million pounds extra will have to be collected under the new tax rates, and there's no guarantee sellers would absorb those costs. One retailer might hold out to maintain a competitive advantage over its rivals, but the increase in taxes may make it difficult not to pass on costs to consumers. As a result, apps, games, music, and other content in Apple's iTunes and App Store, Google Play, Amazon, and other sellers may rise in 2015.

source: The Guardian, via: Android Central

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Andrew Kameka
Andrew is based in Miami, Florida.

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