A Liberal-dominated committee will be calling for a 5-per-cent tax on broadband Internet services to fund Canada's media industries, which are struggling to adapt to technological changes and evolving consumer habits, sources said.
The move would add hundreds of millions of dollars in revenues to the Canadian Media Fund, which already receives a levy on cable bills to finance the production of Canadian content. However, it would open up the government to accusations that it is once again raising taxes on consumers.
Liberal and opposition sources said the new levy is the central proposal in the majority report of the Canadian Heritage Committee of the House of Commons, which will be released on Thursday. The sources spoke on condition of anonymity as the report is not yet public.
Read more: New system for funding Canadian content would rely on tax credits
The Heritage committee has spent more than a year studying Canada's media industry, in which companies are steadily losing advertising revenue and market shares to Facebook, Netflix, Google and other international giants.
Sources said MPs of all stripes acknowledged the shaky state of the industry, including the decline in local news coverage in communities across Canada. However, they disagreed on the solutions to the problems, with the Conservatives refusing to sign on to the majority report, sources said.
The Liberal proposal for a new levy would build on the current 5-per-cent charge on cable and satellite TV bills across the country, sources said.
A source explained the revenue stream generated by the current cable levy is no longer sufficient in an age of cord cutting and "over-the-top" services that stream content over the Internet.
Under the new proposal, an additional tax would be levied on "broadband Internet providers." It would ideally apply to high-speed Internet services that allow for the streaming of music, movies and TV shows, but not to slower and less costly services, the source said.
As such, proponents of the proposal are branding it as a "streaming tax rather than an Internet tax," designed to bring the existing cable-based system in line with recent technological changes.
"People will say it's a new tax, but it isn't a new tax," a source said. "The goal is to update the current levy on cable companies to include other services that they now also provide."
Cable and satellite services by companies such as Bell, Rogers, Shaw and Vidéotron are already contributing to the CMF. The levy on broadband Internet services would apply to their Internet services as well, adding hundreds of millions of dollars annually to the CMF.
In 2015-16, the agency spent $371.7-million on Canadian television and digital media projects.
Still, the proposal is fraught with pitfalls. One expert in Canadian media, former CBC and Telefilm executive Richard Stursberg, argued in a recent report that the Supreme Court has already rejected a levy on Internet service providers.
"This is not a viable or desirable option," he said. "Further taxing of ISPs would raise the cost of service and slow the deployment of high-speed networks. This seems unwise on economic as well as cultural grounds."
The Conservatives are also gearing up to oppose the levy by saying that the cost would be passed on to consumers, sources said.
Liberal MP Hedy Fry, who is the chair of the Heritage committee, refused to comment on the content of the report on Wednesday, stating only that it will be "interesting."
Heritage Minister Mélanie Joly has launched a review of Canada's cultural policies and programs, stating that everything was on the table. She is expected to lay out her vision for an overhaul of the government's laws and programs in a major speech in September.
She has already carried out pan-Canadian consultations on the state of the industry, but is expected to consider the Heritage committee's report as she develops her response to the crisis in the media industry.
The Liberal government has previously spoken out against a "Netflix tax" that would force the streaming service to contribute to the CMF. However, the government is facing widespread pressure to start charging sales taxes on services such as Netflix and iTunes, to level the playing field with Canadian-based services.