Canadian Chamber of Commerce Warns of Digital Services Tax Consequences

The Canadian Chamber of Commerce is joining the chorus of those who are warning of the consequences of the Digital Services Tax.

When we last wrote about the Digital Service Tax (DST), we wrote about how it was delayed last year. At the time, it seemed like nothing was really stopping it despite the many warnings about the negative consequences of implementing it. It was originally slated to begin on January 1st of this year and pull in $7.2 billion.

On the surface, the idea of a DST doesn’t sound like that bad of an idea. There are, indeed, certain taxes that the large websites don’t pay. In theory, that puts Canadian businesses at a disadvantage, so the DST supposedly make up that difference. All businesses operating in the country would pay similar taxes and operate on the same footing and the Canadian government gets an additional revenue stream to boot. That doesn’t sound all that objectionable, really.

Of course, beyond the sales pitch, there are serious underlying problems with this idea. Chief among them is the implications this has on trade relations with the United States. Primarily, the services that the DST was set to target are American businesses. Obviously, Canada has trade agreements with the US that, among other things, prevents either country from implementing discriminatory laws against each others businesses. The DST falls well within the category of discriminatory practices from the government.

What’s more, this isn’t some idle theory, either. The United States has named the DST as one of three reasons why they are openly contemplating issuing trade sanctions against Canada. The US has repeatedly warned that is Canada moves ahead with these laws and implements them, they would respond in kind. Speculation is that this is the reason why the DST hasn’t been implemented by now.

While the law was delayed, it isn’t dead, either. Recently, the legislation behind the DST, Bill C-59 under the bland name “An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023” has passed third reading. While that is worrying, the good news is that lawmakers broke for the Summer and won’t be back to move legislation forward until September. It’s the same reason why the disastrous Age Verification law was delayed as well.

While the delay is a reprieve, the bill is still dangerously close to passing. So, it’s not a surprise that the Canadian Chamber of Commerce has sounded the alarm over this. In a statement, they warn of the consequences of the DST:

Regrettably, the Government has moved one step closer to implementing this discriminatory and damaging digital services tax (DST) via Bill C-59, in contravention of prevailing international tax principles.

At a time when Canadians are struggling with affordability, this tax will increase costs for consumers on a variety of everyday products and services that rely on digital platforms including digital subscriptions, a rural getaway booked online, takeout after a long work week, or the handmade products purchased from Canadian artisans.

Carrying through on the service tax risks damaging our beneficial and lucrative trade relationship with the United States, with the very real threat of retaliatory tariffs looming at such a sensitive economic time.

The government needs to continue negotiating with the United States and halt the imposition of a unilateral DST, or at the very least, ensure that regulations do not include inflammatory retroactivity to 2022.
– Jessica Brandon-Jepp, Senior Director, Fiscal and Financial Services Policy

This isn’t even the first time the business community has been sounding the alarm over this legislation. Back in November, business leaders were begging the Trudeau government to not move forward with this legislation. They aren’t wrong in their opposition to this and they have very good reason to be wary of this.

Should the DST go through and the US follows through on their long running multi-year long threat of retaliation, pretty much any business could feel the sting of US action. Nothing is stopping the US government from targeting specific, seemingly unrelated businesses, in their bid to put pressure on Canada to back off of this. The US, after all, has a number of options at their disposal to exert pressure on Canadian lawmakers. Canadian businesses, for their part, could find themselves being collateral damage in all of this.

That is ultimately why the business community is pretty freaked out over all of this. Businesses generally prefer smooth relationships with other countries. If a full blown trade war breaks out, it becomes much harder to conduct business – especially if your business depends on others across the border. Businesses are motivated to not roll the dice and hope that the aren’t negatively impacted in all of this.

At any rate, the new forward momentum of the DST is worrying. Chances are, when lawmakers return, the government will want to wrap this legislative process up sooner rather than later similar to how the unconstitutional Bill C-11 got rammed through following the that Summer break last year.

At any rate, it’s likely that those who oppose the DST will try and ramp up their campaign to try and convince the Canadian government to not go through with this. As the creative and journalism communities learned the hard way, that’s not an easy thing to do as both of them are now staring down the abyss of their careers. Speaking from experience, we can only say to the business community, “Good luck. You’re, sadly, going to need it.”

Drew Wilson on Mastodon, Twitter and Facebook.

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