Sales tax regime for digital services outdated: auditor general

OTTAWA — Canadian companies that sell digital products which are subject to sales tax are “disadvantaged” by foreign companies who are exempt from the tax, according to one of the auditors behind a report released by the auditor general’s office Tuesday. Audit team principal Philippe Le Goff declined to specify at a press conference whether it would be better to resolve the situation by imposing taxes on foreign companies or by lifting them from domestic providers. “That’s a decision for the government to take,” he said in French. “It’s certain that in the current system, Canadian companies are disadvantaged,” Le Goff said, though he added it’s not up to the auditor general’s office to have an opinion on what tax policy to implement to resolve the issue. The report, one of five released Monday, looked at taxation of e-commerce, including the issue of foreign digital services with no physical presence in Canada — like Netflix Inc. — not having to collect and remit sales tax. It’s been an issue for the Liberal government since the last federal election four years ago, which has since repeatedly refused to implement any kind of “Netflix tax.” “Overall, we found that the Canadian sales tax system did not keep pace with the rapidly evolving digital marketplace,” the report said. “On the basis of publicly available data, we estimated losses of $169 million in the GST on foreign digital products and services sold in Canada in 2017.” Officials said they weren’t able to break that number down by specific companies or categories, such as video streaming services compared to other foreign digital products. The estimate was based on “publicly available data from various sources,” the report said. The report didn’t offer any recommendations on the issue, with officials saying in the press conference any action would be up to finance minister Bill Morneau. The report noted consumers in Canada are technically supposed to complete a form and pay sales tax on digital products from foreign companies directly to the government if the tax owed is more than $2. But while two-thirds of Canadian adults bought digital products, only 524 GST/HST forms for purchases were submitted to the government. The report noted that requiring consumers to self-assess the sales tax owed is at odds with recommendations from the Organisation for Economic Co-operation and Development (OECD), which says that digital vendors should be responsible for collecting sales tax where it is required. Quebec implemented sales taxes for foreign digital products at the provincial level last year. In the first three months of 2019, that tax amounted to $15.5 million -- double what it had predicted, La Presse reported earlier this month. The fact that digital services from Canadian companies are subject to sales taxes has long been a point of contention within Canada’s media and telecom industry. BCE Inc., whose Crave streaming service is subject to sales tax, has been calling for the tax to be applied on foreign services for years. After former Heritage Minister Mélanie Joly refused to implement the tax in her 2017 Creative Canada strategy, Bell CEO George Cope wrote to the government asking it to level the playing the field between domestic and foreign players. “If the Federal Government truly believes that it cannot or should not levy sales tax on Netflix and other foreign online video streaming services, then we ask for the removal of sales tax from Canadian video streaming services,” Cope said in an October 2017 letter, obtained through an access to information request. The company said that at that point, Crave had lost money since its launch in 2014, though the exact amount was redacted. The company doesn’t publicly report the revenues or profits earned by the streaming service. In a press conference Tuesday afternoon, National Revenue Minister Diane Lebouthillier reiterated the Liberal government’s long-held position that it doesn’t want to impose new taxes on Canadians, but also pointed to work that is ongoing at the OECD to come to an international agreement on the issue. When he was asked about the report, Prime Minister Justin Trudeau also pointed to the work that is ongoing to come to an international consensus. “We’ve always said we’re not going to increase taxes on consumers. Consumers already pay too much for their online services,” he said in French, according to a transcript. — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Ahmad Hathout at ahathout@thewirereport.ca

Sales tax regime for digital services outdated: auditor general

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Sales tax regime for digital services outdated: auditor general

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