Auditor General of Canada raises concern that the tax system isn't keeping pace with the digital economy

Ottawa (17 May 2019) In its weekly newsletter, Canadians for Tax Fairness has reported that, according to the Auditor General of Canada, Canadian businesses are at an "unfair disadvantage" because the tax system has not kept pace with the digital economy. While Canadian companies are required to collect and remit sales tax on top of income tax, foreign e-commerce corporations such as Netflix and Facebook are not.

The Auditor General estimated that not requiring foreign e-commerce companies collect sales taxes is costing Canada $169 million in the GST on foreign digital products and services sold in Canada in 2017 alone. The amount would likely be higher today given the increasing shift to online retail. Because companies can deduct foreign internet advertising costs, Canadian businesses are taking a double hit.

Finance Canada has admitted that failing to require foreign e-commerce companies collect taxes is hurting the Canadian economy

According to the Auditor General report, Finance Canada has acknowledged that this bias against Canadian-based companies could even have encouraged Canadian vendors to move their operations abroad and discouraged foreign investment here. The Auditor General’s findings establish many of the arguments that C4TF has made in the campaign to level the digital playing field. 

Canada one of the few countries not dealing with tax challenges from digital economy

The vast majority of other OECD and G20 countries have taken steps to address tax challenges created by the digital economy, but Canada is one of the very few that haven’t — despite the damage to the economy and jobs, and a wide range of stakeholders urging the federal government to act.

As other countries introduce new measures to level the playing field, an interesting Bloomberg column this week reflects on the most recent proposal by the Czech government to place a 7 percent levy on targeted online advertising, arguing this is the best way to tax Google and Facebook.

Even conservatives starting to recognize that foreign owned e-commerce companies shouldn't be given special treatment

While Justin Trudeau and Andrew Scheer have both opposed requiring foreign e-commerce companies abide by the same rules as Canadian companies, many others are realizing that giving foreign companies an advantage Canadian ones don't have makes no sense. That includes many small-c conservatives. Even though they are among the more conservative governments in Canada, both Quebec and Saskatchewan require foreign owned e-commerce companies to collect and remit sales taxes.

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