News - UK 99p digital downloads under threat as full VAT is to be applied

[jim]

The problem is that on digital delivery that sort of checking process is nigh on impossible - unless you are the NSA, and it still would not help if the digital download was to a cloud server based (for example) in Ireland but used by UK customers

I doubt that's the reason. I'm sure if it was a legal requirement, then Steam and the like wouldn't be trying to help their users to evade the tax.

[Noxvayl]

I unsurprisingly agree with Saracen. I disliked the tax dodging by companies and welcome a measure to address it.

What I think most people are complaining about is the fact that this solution will affect customers more than it does companies and as such doesn't change companies behaviour. As such the status quo remains and we fit the bill. I would be more willing to defend this move if we were provided with a reduction in income tax that roughly equals this rise in VAT. I'd much rather pay 40-50% VAT and have zero income tax; it would reduce the complexity of the tax system and essentially eliminate tax dodging simultaneously.

[jim]

I unsurprisingly agree with Saracen. I disliked the tax dodging by companies and welcome a measure to address it.

What I think most people are complaining about is the fact that this solution will affect customers more than it does companies and as such doesn't change companies behaviour. As such the status quo remains and we fit the bill. I would be more willing to defend this move if we were provided with a reduction in income tax that roughly equals this rise in VAT. I'd much rather pay 40-50% VAT and have zero income tax; it would reduce the complexity of the tax system and essentially eliminate tax dodging simultaneously.

Apart from smuggling and failing to declare imports.

[Lucio]

The companies involved are unlikely to see any change in their bottom line with these changes, prices will go up rather than the companies bearing the cost (beyond maybe a short term promotion to grab attention).

Whilst I agree that more needs to be done with regards to ensuring that corporations are taxed fairly in the countries where people are spending the money, a VAT rise will only be raising more money because people are paying more.

The world governments need to stop mucking around and start paying more attention to the loopholes used and work on ways to shut them down, little by little (and yes, it has to be small steps at a time because the economy is money flowing backwards and forwards, if you tighten up on flow too quickly then the whole system runs dry)

[LSG501]

Now I'll admit that I'm not 100% on my info when it comes to British taxing system outside of the I pay mine like I'm supposed to and don't go trying to 'hide it'.

All the vat hike will do is make the companies that don't already use a 'uk tax' (supposedly apple/google already do while amazon doesn't) will put up the prices. They won't lose any money, if anything they'll 'round up' to the next nice number and make a little extra. Any real area where the government could make real gains (Corp tax for example) will likely still be able to be 'hidden away', we've got a conservative government, they ALWAYS look after their rich 'friends'.

But I'll just stick this into the 'UK users get screwed as usual on digital pricing' pile of issues I have with 'digital purchases'

[Saracen]

Wasn't that rant about how little corporation tax those companies were paying? This is a whole different rant! VAT is paid by the consumer, not the retailer.

The situation with ebooks is particularly irritating for me, since paper books are VAT free. It seems ridiculous that sometimes charge more for the eBook than its printed counterpart, when ebooks are inherently cheaper to supply & distribute.

Yes, but it's astonishing how corporates avoiding tax = bad, but when consumers are expected to pay their "fair share", all of a sudden it's a gross intrusion.

[Saracen]

....

All the vat hike will do is make the companies that don't already use a 'uk tax' (supposedly apple/google already do while amazon doesn't) will put up the prices. They won't lose any money, if anything they'll 'round up' to the next nice number and make a little extra. Any real area where the government could make real gains (Corp tax for example) will likely still be able to be 'hidden away', we've got a conservative government, they ALWAYS look after their rich 'friends'.

....

Erm, we don't have a conservative government, we gave a coalition government.

As for "real gains", you do realise that VAT us a HUGE earner for the government? It's the second-largest individual category of revenue after income tax, (though NI runs a very close third) and way, WAY larger than corporation tax? You would, in rough terms, pretty much have to triple corporation tax to raise the same as VAT, and if you wanred to replace VAT with a rise in corp tax, you'd have to quadruple the revenue from it. And quadrupling the rate wouldn't do it, because a tax hike of that size would both drive a LOT of companues overseas, and put a lot of others out of business altogether.

VAT, on the other hand, doesn't affect a companies bottom line at all. Well, apart from the cost of administering it. Because, any VAT received us netted off with any VAT reclaimed on purchases, and the balance either remitted to HMRC, or reclaimed from HMRC as a refund. They neither profit nor lose from a rise in VAT.

[Saracen]

I unsurprisingly agree with Saracen. I disliked the tax dodging by companies and welcome a measure to address it.

What I think most people are complaining about is the fact that this solution will affect customers more than it does companies and as such doesn't change companies behaviour. As such the status quo remains and we fit the bill. I would be more willing to defend this move if we were provided with a reduction in income tax that roughly equals this rise in VAT. I'd much rather pay 40-50% VAT and have zero income tax; it would reduce the complexity of the tax system and essentially eliminate tax dodging simultaneously.

The problem with that is it'll be hard to do. VAT works in quite a strange way, for a start, being one if the more progressive taxes. Income tax, ironically, is less so.

And, rather than increasing the marginal rate for higher earners, higher VAT rates would offer much larger opportunities for avoidance because, by careful behaviour and refraining from spending on non-essentials, you can come pretty close to not paying VAT at all .... except for petrol/diesel.

Therefore, VAT rates much higher would have a major effect on consumer behaviour, whereas income tax has very little distorting effect.

[Noxvayl]

@ Saracen

That would be a welcomed side effect, finally people will think when they buy rather than just buying. If you want a non-essential item you won't be able to avoid VAT, but you would think twice about purchasing it and whether you actually need it. People could avoid VAT for periods of time, excluding fuel, but everyone eventually has to get something that has VAT applied whether that be when your car goes in for a service, an appliance breaks or you are introduced to something that would improve your day to day life.

I agree that it will be hard to do but I think that it would be beneficial to do so, especially in the environment of hyper consumption that we are in. The particular type of distorting effect it will have by making consumers think before buying would be beneficial in my mind. If you earn £18 000 at the moment you only get to choose what you do with about £15 000; having that extra £3000 to use would, for some people at least, offset the extra cost of items with VAT.

[crossy]

The situation with ebooks is particularly irritating for me, since paper books are VAT free. It seems ridiculous that sometimes charge more for the eBook than its printed counterpart, when ebooks are inherently cheaper to supply & distribute.

Yes, that a eBook format of a paperback can cost more than that paperback seems daft to me. On the other hand, I'm also less than impressed that a book that comes with a supporting CD do appear to be VAT-rated. I bought a lot of "learning guitar" books at the end of the year, (and no, they didn't help - I still can't play), and that really rankled that in that case you need the CD, (so you can hear what it's supposed to sound like - usually nothing like I do), but then it's got VAT'd. Only upside is that at least Amazon's discounts mean your not paying "retail" cost anyway.

I unsurprisingly agree with Saracen. I disliked the tax dodging by companies and welcome a measure to address it.

Not to give Saracen a swollen head, but usually if I find myself in disagreement with him my first thought is "Okay, what am I missing-out-on/not-understanding here?" and end up rereading the article/comment a couple of times.

[Saracen]

Interesting approach, Noxvayl. It's going to need some thinking about.

Somewhat surprisingly, I rather find myself agreeing, on a gut level .... hence needing to think about it. Part of me follows the 'inertia' route of thinking a radical realignment is wrong, but the other part is inclined to think that putting more control over the extent to which people are taxed into their own hand based directly on their behaviour is no bad thing.

Of course, we have drifted away from VAT on 99p downloads, but it's a VERY interesting approach.