Budget could mean an end for 69p apps, cheap Steam games

As well as not ushering in tax breaks, last week’s Budget may have brought with it another bad piece of gaming news.

As reported by The Guardian, the Chancellor also revealed plans to close a VAT loophole that was allowing the likes of Steam, Apple and Amazon to sell their digital downloads through countries with a lower tax rate.

For example, these companies currently sell apps to UK buyers via regions such as Luxembourg which typically have around a three per cent tax rate on such sales. The current UK VAT rate is 20 per cent.

New laws will mean that as of January 1st 2015 internet downloads will need to be taxed in the country in which they are purchased.

The move could net the Treasury in the region of 300m per year, but could also see more than 15 per cent added to price of digital downloads and 69p app downloads upped to around 79p.

Depending on how much of this increase is passed onto the consumer, a Steam game currently retailing for 6.99 could see its price raised to over 8. A 34.99 new release, meanwhile, could be bumped to over 40.

Previous research has suggested that Britain could have financed the Olympic Games from the VAT it will have lost on the sales of digital services between 2008 and 2014”, the site reports.

UPDATE: Luxembourg’s standard VAT rate is actually 15 per cent, with a three per cent rate applied specifically to ebooks. On the presumption that 15 per cent VAT is applied to digital games downloads that could potentially see the following increases:

69p – 72p
6.99 – 7.33
34.99 – 36.73

However, it is possible that specific companies have specific arrangements in place meaning that purchases could be made at a tax rate of between nothing and 15 per cent. Plus there is no way of knowing what proportion of additional VAT charges will or will not be passed on to UK buyers.