Why is Apple allowed to charge a 30% tax?

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Main topic: Tech
Other topics: Apple
Short answer:
  • Apple charges a 30% commission, colloquially known as "Apple Tax", for in-app purchases and subscriptions on iOS apps that surpass U.S. dollar 1 million revenue.
  • It charges a 15% commission for small businesses with revenue under U.S. dollar 1 million.
  • It is under antitrust scrutiny for monopolizing and setting a high commission rate.

Apple's commission charges for using its App Store and in-app payment mechanism are called the "Apple Tax." Most purchases made via iOS applications are subject to a 30% surcharge. It also includes in-app purchases such as monthly subscription fees for services, NFT sales, and pay-to-win gaming purchases.[1]

Apple makes a sizeable revenue from its App Store[edit]

The App Store is one of its primary revenue sources for Apple. In 2021, Apple generated revenue of U.S. dollar 85.1 billion from the commission charges alone. There would have been additional revenue from the advertisements in the apps.[2]

Apple is charging 30% "Apple tax" because of its total control over the ecosystem[edit]

Apple has arguably monopolized and enforced arbitrary rules on its App store. Their pricing structure in iOS is independent of any external oversight, and as such, they can, and they have demanded high commission charges. Google has also faced similar accusations.[3]

Some app categories, like food, are exempt from the commission charges.[4]

Apple is under antitrust scrutiny for unfair competition and monopoly[edit]

Several service providers like Spotify and Netflix have argued that Apple is charging them a 30% commission while launching its version of music and streaming services for cheaper. It constitutes an unfair competitive advantage.[5]

Many apps, including Netflix and Spotify, have stopped in-app purchases on iOS. Netflix, for example, now redirects users to its website to purchase a subscription.[6]

Netflix provides external link to subscription on iOS
Netflix provides external link to subscription on iOS

The publicized antitrust litigation between Epic and Apple has been ongoing.[7] Apple pulled the plug on their popular RPG game Fortnite because they bypassed the App Store payment methods.[8]

There some concerns that existing ambit of antitrust laws does not have enough provisions to provide an adequate solution. For example, if a judge observes and finds Apple violates antitrust laws. If they mandate a 15% commission instead of the existing 30%, Apple may create a pricing structure with different quality and service levels. They may provide 15% commission with lower levels of service and 30% commission for priority service levels.[9]

Apple has responded to mounting public pressure and antitrust scrutiny by slashing the commission rate for small developers[edit]

Since 2020, Apple has created an "App Store Small Business Program." It has slashed the commission rates to 15% for developers making less than U.S. dollar one million while retaining the 30% commission for big developers.[10]

References[edit]

  1. ↑ "Apple Tax and the Choice Conundrum for Mobile Apps". www.chargebee.com. Retrieved 2022-10-19.
  2. ↑ "Apple App Store revenue 2021". Statista. Retrieved 2022-10-19.
  3. ↑ "Google and Apple attacked on app store 'monopoly'". BBC News. 2021-04-22. Retrieved 2022-10-19.
  4. ↑ Partners 2022 (https://www.insightpartners.com/), Insight (2022-05-23). "Do You Have to Pay the Apple Tax? It's Complicated. | Blog". Insight Partners. Retrieved 2022-10-19.
  5. ↑ Paul, Greig. "Why the Apple and Google app store monopoly could soon be over". The Conversation. Retrieved 2022-10-19.
  6. ↑ "Netflix to bypass Apple's In- app purchase charges with new subscription button". Hindustan Times. 2022-07-26. Retrieved 2022-10-19.
  7. ↑ Stoltz, Karen Gullo and Mitch (2022-02-04). "EFF to Appeals Court: Apple's Monopoly Doesn't Make Users Safer". Electronic Frontier Foundation. Retrieved 2022-10-19.
  8. ↑ "Epic Games v. Apple", Wikipedia, 2022-10-15, retrieved 2022-10-19
  9. ↑ MacCarthy, Mark (2021-06-02). "The Epic-Apple app case reveals monopoly power and the need for new regulatory oversight". Brookings. Retrieved 2022-10-19.
  10. ↑ "Apple Is Reducing Its App Store Tax to 15 Percent for Most Developers". PCMAG. Retrieved 2022-10-19.
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