Canadian Economic Statement: Web Giant’s to Pay HST/GST Taxes

Entities like Spotify, Amazon, and Netflix could soon be compelled to collect and remit taxes for GST/HST.

Taxing the web giants. This has been an off and on thing that’s been suggested since the election. While it is one thing to promise this for votes, it’s quite another to actually do this.

One of the often bandied about ideas is to levy a 3% tax on various web giants. The idea is that web giants don’t pay taxes in Canada. As a result, they have a competitive advantage over businesses in Canada. The concept is supported by a number of the different parties. Yet, after all of the off and on promises to do so, it seemed like this simply hasn’t happened.

Recently, however, there appears to be some movement on this front. Recently, the Canadian government released an economic statement. The statements generally offer a snapshot of what the economy is like and how the government is moving forward. Many of them come and go with only some fanfare. This one, however, is much more closely watched. This is because it offers hints on things like how a COVID-19 vaccine is going to roll out and how the government is going to kick start the economy after the vaccines get distributed.

Amidst the debates and the comments, there was an additional item thrown in: taxing the web giants. It isn’t the 3% tax that was bandied about, but it is about taxing the giants in the first place. From the National Post:

The federal government will soon force foreign digital vendors like Netflix and Amazon to collect sales taxes on a bevy of products and services sold to Canadians, while also promising a much-requested new tax on web giants by 2022.

The announcement, included in Monday’s fall economic statement, comes less than two weeks after the auditor general told MPs that Canada is losing out on at least $247 million annually in unpaid Goods and Services Tax/Harmonized Sales Tax (GST/HST) on digital products and services such as streaming or mobile apps.

“Under current rules, foreign-based digital businesses can sell their goods and services to Canadians without charging the (GST/HST), which puts the burden on Canadian consumers to remit the sales tax,” the document reads.

“This gives foreign-based digital corporations an unfair advantage, and undercuts the competitiveness of Canadian companies. It also deprives the government of tax revenues that could be used to better the lives of everyone.”

Generally speaking, brick and mortar stores charge a GST (Government Sales Tax) or HST (Harmonized Sales Tax). This comes as a percentage of the goods or services bought. The businesses in question then hold on to that money and give it to the government. Commonly, this is referred to as charging and remitting taxes.

In retrospect, it’s actually quite surprising that the web giants have managed to avoid paying and remitting taxes all this time. As pointed out in the excerpt, there is quite a lot of cash being left on the table for the government. Plus, if smaller businesses have to charge and remit those taxes, why not web giants.

So far, on the surface, the move is quite non-controversial. From a right leaning perspective, if there is going to be a tax, shouldn’t it be applied evenly to everyone who operates in Canada? From a left leaning position, why should a corporate giant be above such rules in the first place?

At this point, the question is, how would collecting such taxes affect the prices in the store? What is likely is that the various services will just pass the cost onto the consumer. After all, the global COVID-19 pandemic has created increasing dependence on the larger tech giants like Amazon.

The article further notes the following:

The Fall Economic Statement also promises:

• An undetailed tax on companies offering digital services, such as Google or Facebook, that would be put in place starting Jan. 1, 2022, and bring in $3.4 billion over five years.
• New measures to ensure sales taxes are paid on short-term rentals booked through online platforms (like AirBnB).
• New taxes on uninhabited real estate used by rich foreigners.
• Significant investments in the Canada Revenue Agency’s fight against offshore tax evasion and aggressive tax avoidance that the government says will return $1.2 billion to the nation’s coffers over five years.

What we’re hearing is that the NDP is calling for further taxes on the web giants and those who profited handsomely from the pandemic. The thinking is that the web giants enjoyed a free ride for so long in Canada and that they need to pay taxes as part of their fair share. They don’t disagree with making them charge and remit GST/HST taxes, but call it the bare minimum.

While those who are hoping that the web giants will pay more in taxes might like the move, this is likely just a baby step forward. Still, a baby step forward is better than nothing – which has been the case all the way up to now.

Drew Wilson on Twitter: @icecube85 and Facebook.