No fee for Netflix, nor for the rest!
Thursday, 24 August, 2017 13:03
Thursday, 24 August, 2017 13:16
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Various recently published studies claim that foreign companies receive the sales taxes on the goods or digital services purchased over the Internet. It is for example services of video streaming, such as Netflix, e-books, or some of the platforms of resale, such as StubHub, where these companies are located outside of Canada.
At this time, it is up to consumers to declare themselves such purchases on the Internet, but, without surprise, almost no one does. In 2011, six people have filled out this form, and five in 2012…
The problem raised by these studies is that of competition. Canadian merchants who want to offer this type of service have to deal with the sales taxes, federal and provincial, whose rates are still relatively high, while foreign companies do not have to collect, and in all legality. Foreign companies are therefore advantaged compared to canadian businesses. However, a basic rule in taxation is that tax should be neutral and not influence behaviour.
The solution recommended by the two studies mentioned above is, essentially, to force foreign companies to collect sales taxes and remit to the canadian revenue Agency. The problem is that it is a solution difficult to implement. In Canada, the rates vary from province to province, as does the list of products that are zero-rated or exempt. In the case of Quebec, the sales tax must be remitted to a different body. This makes things complicated, even for companies operating in Canada and who are familiar with the system.
Then, it is not enough to implement a tax for it to be effectively perceived. The evidence is that there is currently a fee for these purchases online, but that less than 10 people pay each year. The Canada revenue Agency has relatively limited resources to battle the legal beyond canada’s borders. It may not continue millions of consumers to collect a ton of small amounts.
But what strikes the most is that these studies do not suggest the simplest solution and the most effective to address the problem of tax competition. The zero-rate digital goods and online services to canadian businesses. There are precedents : many countries have two or even three rates of sales tax depending on the industries. Even in Canada, some products, such as consumer products, are zero-rated. This measure would enable canadian and foreign vendors of digital goods and services on an equal footing.
There are other reasons to give preferential treatment to on-line shopping, regardless of the canadian problem related to the foreign competition. Some economists suggest that the sales tax on online purchases should always be lower than the products in physical stores, since the deterrent effect is more important online. A lower tax on the online commerce then becomes necessary for the two types of businesses are influenced in the same way by taxes.
Sometimes, it seems that our tax experts are suffering from a strange evil : the belief that there is no problem that cannot be solved by a new tax. However, in the case of sales taxes on digital goods and services from abroad, the simplest and most effective is simply to no longer be taxed, whether they come from here or from abroad.