Pressure is mounting on the government to level the digital playing field in Canada and the calls for action are coming from a wide range of supporters, including labour, business, arts and media, and most Canadians.
Next week, Finance Minister Bill Morneau has the opportunity to introduce measures in his budget to generate substantial revenues and restore the competitiveness of Canadian businesses by eliminating the tax preferences that primarily benefit large foreign digital and e-commerce corporations, such as Facebook, Amazon, Apple, Netflix Google (FAANG) and others.
Our federal government still allows digital services to be imported into Canada tax free, while domestic producers and retailers are obliged to charge GST/HST on similar services they sell to Canadians. This creates a significant tax advantage for foreign digital corporations — some of the largest in the world — at the expense of our domestic producers and workers. The giant corporations that benefit the most from these made-in-Canada tax preferences also pay little in corporate or other taxes here, or elsewhere.
The OECD urged countries to take steps to rectify these problems many years ago. The vast majority of other OECD and G20 countries have done so, but Canada is dragging its feet.
Other governments within Canada are moving ahead to remove this bias without Ottawa on board. Saskatchewan just introduced a sales tax on foreign suppliers such as Netflix. Quebec expects to collect $155-million in lost revenue over five years from its e-commerce tax, which was applauded by Canadian service providers, such as Bell and Quebecor, whose CEO said, “we are glad to see that, unlike the federal government, which is knuckling under to the giants of the web, the Québec government has heard the outcry from the cultural community, the business community and the trade unions.”
The Coalition for culture and media, representing more than 40 groups, from journalists to filmmakers, has also welcomed the tax and reiterated its call for federal action to protect Canadian workers in media, arts, and culture, where thousands of jobs have been lost.
A recent Environics survey found that 77 per cent of Canadians agreed that e-commerce companies should be subject to tax for business carried out in Canada with 54 per cent strongly so.
While the federal government may be reluctant to apply sales taxes on Canadians, even if they correct unfair tax preferences for large foreign corporations, other countries are coming up with alternatives that apply taxes to the revenues of large digital corporations that won’t necessarily be applied to consumers.
France expects its digital tax to raise €500 million ($753 million Cdn) a year and Spain estimates they will generate €$1.2 billion ($1.8 billion Cdn) with its 3 per cent levy. The European Commission proposed a framework for taxing e-commerce companies and many others, such as New Zealand, are adopting their own e-taxes. The U.K. is planning a Digital Services Tax and the U.S. took steps to tax the global profits of digital corporations last year. There’s no reason for Canada to also not move forward.
In addition to a sales tax, Canada can even the playing field by getting rid of the current deductibility companies receive for foreign internet advertising.
Both moves would provide some relief for Canadian media, which continues to lose millions as advertising shifts to online. Last month, Torstar, the publisher of the Toronto Star, reported a 37 per cent decrease in national advertising from a year ago and the government of Canada now spends 65 per cent of its ad budget on digital, compared to just 2 per cent for print.
Canada’s tax laws were written well before the internet age — it’s time for an update. Other developed countries and our own provinces have shown that it doesn’t need to be complicated. A digital tax would go a long way in balancing the playing field for our companies and protecting the thousands of Canadian jobs that contribute to our democracy.
Erika Beauchesne is the communications co-ordinator for Canadians for Tax Fairness.
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