Barry Kiefl is president of Canadian Media Research Inc.
If you buy a painting in the United States and ship it back to Canada, you pay the harmonized sales tax upon delivery. Yet if you import music or a Hollywood movie via Apple iTunes, you pay no sales tax. When you rented videos or bought music at a physical store, you paid tax, but not necessarily so in the digital age. You pay sales tax on your cable subscription, but many newer digital services have fallen outside the reach of the conventional tax system, something few of us have even noticed.
Oddly, if you order Netflix via Apple iTunes, you pay sales tax, but not on music, TV or movies. Order Netflix from any other source, and you will not pay tax. This is not a very orderly system of taxation. It is robbing the government of hundreds of millions of dollars of revenue annually, money that should be supporting the CBC, as well as helping private TV producers and other mass media.
Naturally, we gripe about paying taxes, but few of us complain about paying an extra 13 per cent or so sales tax on a $10 movie ticket. Is there a way to collect the incidental sales tax on Netflix and other digital content, which consumers should rightfully be paying, without creating a whole new bureaucracy?
Canadians, especially in English Canada, have been getting somewhat of a free ride when it comes to supporting homegrown TV and film. Canadian English-language TV produces exceptional news and information programming, but has always ceded the majority of television entertainment to the United States. According to our research, since the beginning of television in Canada in the 1950s, roughly two-thirds of English-language prime-time TV viewing has gone to foreign, mostly U.S. programs. This is unprecedented in the rest of the world. Even when the CBC was the only Canadian channel available, about two-thirds of its audience was generated by U.S. programming and Hollywood movies. It was certainly easier and less costly to buy the rights to these shows than to produce programs as popular and plentiful as those from the United States. Canadians have always appreciated the exceptional quality of Hollywood films and TV, as do many other countries.
But other countries (and Quebec) instinctively recognize the need to create more of their own high-quality entertainment TV and movies as a way of defining themselves, projecting their culture to the rest of the world and balancing the powerful U.S. cultural influence.
All other G7 countries except the United States have a dedicated TV licence fee to support their public broadcasters. For example, in the U.K., an annual household fee of approximately $240 funds the programming of the BBC. By comparison, CBC receives about $85 a household annually from general tax revenues. Given the large number of U.K. households paying the licence fee, BBC TV has approximately $4-billion annually to invest in programs; this is equivalent to the entire Canadian TV industry, which is composed of dozens of networks. Meanwhile, the TV industry in the United States has more than $165-billion in annual revenue. Canada abandoned its licence fee in the 1950s just as expensive-to-make TV was starting up, and this has meant there has never been enough funding to produce world-class programming, with rare exceptions.
The public funds for Canadian television now come from general tax revenues and have to compete with other, important priorities. Mélanie Joly, the minister responsible for the CBC and other cultural institutions, recently announced that she had struck a deal with Netflix to invest $100-million annually for the next five years in Canada rather than impose systematic collection of sales tax on the digital service. This is but a small step to getting Canadian television on equal footing with that of other major countries. Besides, Netflix is a reluctant partner; it will not share any data on the number of subscribers it has in Canada and will not co-operate with TV ratings companies to measure its audience, so evaluating the impact of these new funds may not even be possible.
If a Netflix tax is off the table, then what Canada needs is a "Joly" tax, equivalent to a TV/internet licence fee, collected from consumers when they pay their income tax. The revenue would be used to fund a commercial-free CBC, private TV production and other media, perhaps including traditional newspapers, whose business model has been decimated by the internet. The tax would be an additional 2 per cent on top of a person's income tax, which would amount to about $100 for the average taxpayer and generate about $3-billion annually. This would truly put Canadian TV on the world stage with programs that have international acclaim.