DIGITAL DOWNLOADS are set to attract VAT as the government seeks to prevent tax leakage caused by vendors paying local rates in lower-tax jurisdictions.
Currently, businesses such as Apple and Amazon sell virtual goods such as music, e-books and apps through offices based in Luxembourg and other low-tax areas, where they are taxed at local rates - in Luxembourg's case, at 3%.
Under the new rules, set to be introduced in January after being put forward by George Osborne in a report released alongside the Budget, virtual products will be taxed at the point of purchase with VAT at 20%.
The move would see the price of a typical song on iTunes rise from 99p to £1.16.
"From next January VAT will be charged in the country where goods and services are consumed rather than where the supplier is based. This was leading to some companies deliberately locating in countries with a much lower tax rate," the chancellor said in the report.
VAT yields are expected to rise £300m following the levy's introduction.
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