Canada Finally Rescinds Digital Services Tax

The Digital Services Tax blew up in Canada’s face and the Canadian government has formally rescinded it.

After Canada exhausted all other available options, the government finally did the right thing and rescinded the Digital Services Tax. To be clear, Canada should never have been put into this position in the first place. While Prime Minister, Mark Carney, wasn’t the Prime Minister that implemented this disastrous policy, he did see the mounting threats from the psychotic Trump administration south of the border and could’ve rescinded it. Yet, he chose not to and leaving it in place finally burned Carney last week.

This is because, last week, the Trump administration cancelled trade talks with Canada, citing the Digital Services Tax as the reason for it. Some people dismissed this as yet another temper tantrum from the Trump administration, but we were some of the few people that knew better. After all, the fight over the Digital Services Tax extended well into the Biden administration as well as Biden made it very clear that he was no fan of this new tax. This is because it targets American companies, making it a direct violation of the USMCA/CUSMA. This is something experts like ourselves and others long warned about, but were ignored because the Liberal party had a cult-like mentality in believing black is white, up is down, short is long, and the Digital Services Tax ‘complies with all of Canada’s trade obligations’. As such, all the warnings from people like us went ignored. This along with the numerous warnings and threats from the US over the years over this issue.

In fact, as recently as earlier this month, the Carney Liberals were still banging the drum, saying that nothing was going to stop the implementation of the Digital Services Tax. So, they were hitting the delusion pretty hard right up to the very end that nothing bad was going to happen in implementing this tax.

Of course, as I’ve always argued, reality doesn’t care what you believe. It just does what it does whether you like it or not. When the US halted all trade talks, the Trump administration said that in order to resume those talks, Canada needed to rescind the tax. Late last night, at the 11th hour before Canada was set to start shaking down platforms for billions, the government announced that the tax has been rescinded. From the CBC:

The federal government announced late Sunday evening it is rescinding the digital services tax, days after U.S. President Donald Trump demanded it gone and cut off Canada-U.S. trade negotiations.

In a press release, the federal government said it would rescind the tax “in anticipation of a mutually beneficial comprehensive trade arrangement with the United States.”

“Prime Minister Carney and President Trump have agreed that parties will resume negotiations with a view towards agreeing on a deal by July 21, 2025,” the press release added.

Oopsie!

Speaking to reporters, Carney said that it didn’t make sense to collect taxes from Canadians only to remit it back to them in the first place. I know, right? Who even thought this whole silly Digital Services Tax was even a good idea in the first place? Oh yeah, that was both you and your predecessor. Well, it would’ve been nice if the US government told them ahead of time that they were unhappy with this. Oh yeah, they did… repeatedly… over the last several years. I mean, it wasn’t like experts were also warning the Canadian government that this could’ve been an issue. What’s that? They also did that and wrote about it online afterwards when they were dismissed as “shills for Big Tech” by the government. Well, gosh darn it! Reality is such a pain, isn’t it?

To be fair, this could’ve cost Canada a heck of a lot more. Carney could’ve stuck to his guns, as stupidly suggested by Pierre Poilievre, and made matters even worse. After all, Trump was threatening to add a heck of a lot to the tariffs on Canada if the Digital Services Tax wasn’t removed. Luckily, it didn’t come to that and talks are resuming.

Now, if you think that this is the end of the story for friction between Canada and the US being caused by stupid tech policies, you’d be wrong. The US government has long said that the Online News Act and Online Streaming Act are also points of concern as well. As the process moves further ahead for both, either one could also easily crop up as an issue. Both were very bad bills turned into horrendously bad laws. The demands for money from American companies is, again, a major violation of the USMCA/CUSMA. So, it wouldn’t be a surprised if either law was named as problematic and threats start coming down from the Trump administration.

Michael Geist is also noting that there are problems in the horizon for Canada’s current direction for digital policy:

If this sounds familiar, it is because the Canadian government misreading the tech sector has become a hallmark of its policy. Talk tough, practically dare companies and foreign governments to respond, and then frantically seek an exit strategy when they do. This was the case with the Online News Act and Meta’s blocking of news links, with the government’s AI regulation which new Minister of AI Evan Solomon says will not be re-introduced, with the online harms bill, and now with the DST.

Unfortunately, this misreading does not end there. The Bill C-2 lawful access provisions create significant new costs and scope in surveillance requirements that may place Canadian and foreign companies into legal quagmires where they cannot comply with both Canadian and U.S. laws. The opposition to the bill will grow in the fall until the government tries to find a way out. Further, last week, the government released a joint statement with the European Union that says Canada and the EU will “align our frameworks and standards in the regulatory field, to make online platforms safer and more inclusive, to develop trustworthy AI systems and to establish interoperable digital identities and digital credentials to facilitate interactions between our citizens and our businesses.” This suggests more of the same on online harms, AI regulation, and speech regulation.

There is a need for smart tech regulation in Canada. Unfortunately, the government has too often viewed tech primarily as a source of revenue for policy projects – the proverbial “make web giants pay” – while overestimating the attractiveness of the Canadian market and underestimating the risks of costly regulation. Canada desperately needs a tech regulation reset. Perhaps the embarrassment of walking away from $7 billion will provide the wake up call.

I absolutely agree with this. There are so many great things Canada could be doing with its tech policy. Canada could be moving forward with privacy reform (which I have been a big advocate for over the years), it could be working on policy for reducing cell phone and internet costs, it could be expanding broadband access to rural and indigenous communities, it could be implementing programs for companies to make the digital transition easier, it could be creating programs to support independent digital creators and small businesses, it could be increasing competition in the ISP and cell phone sector, it could be working on a framework to stop scam and spam phone calls from overseas, and it even could be working on a framework to help out consumers where bills are transparent from carriers and ISPs along with various protections against unfair charges and contracts. That’s not even an exhaustive list of things the Canadian government could be doing. Yet, it is choosing to do none of the above in any serious manner. Instead, it is all about charging platforms money to fill their coffers and prop up legacy media companies as it looks to try and preserve the past while punishing the future.

The Digital Services Tax was always bad policy. All it would’ve really accomplished was to make life more expensive for Canadians. That’s looking at the situation optimistically. It was on the way to being subject to legal challenges and, as we’ve seen above, it was always a trade risk as Canada navigates the Trump administrations erratic and crazy impulses. Canada didn’t need a weakness in their trade policy and the Carney government left that weakness in there anyway. It finally caught up to them and the Canadian government, in the most weird and convoluted set of circumstances imaginable, was forced to finally do the right thing on this file. That’s… something, I guess.

Drew Wilson on Mastodon, Twitter and Facebook.