The new budget would close loopholes used by online retailers to dodge UK taxes.
The latest budget introduced by the UK chancellor, George Osborne could increase the tax on digital downloads by 20% as it aims to fix a loophole that enabled digital downloads to avoid taxes.
As per the new law, internet downloads would be taxed in the country where they are bought, signifying that web firms including Amazon and Apple have to charge the UK’s 20% rate of VAT, while they currently sell digital downloads via countries such as Luxembourg, which has a very low tax rate of 3%.
The budget document cited by the Guardian noted: "As announced at budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services.
"From 1 January 2015 these services will be taxed in the member state in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue," the document added.
From next January, the latest overhaul would appear to affect all digital downloads including music, apps, and ebooks, while apps may be least affected as they are already taxed at the 15% range.