A Liberal-dominated committee is calling on Ottawa to collect sales tax on foreign online services such as Netflix just as the Quebec government prepares to impose its own tax.
The House of Commons committee on international trade released its recommendations on Thursday after a wide-ranging study on e-commerce issues that heard from academics, exporters and large online retailers.
The committee’s call for Ottawa to apply sales taxes on “tangible and intangible” products sold by online retailers adds to the pressure facing Finance Minister Bill Morneau to address the issue.
Taxation concerns related to crossborder online sales will likely be discussed this spring as Canada plays host to meetings of the Group of Seven, including a gathering of finance ministers and central bankers that begins on May 31 in Whistler, B.C.
Members of the Group of 20 and the Organization for Economic Co-operation and Development have been working behind the scenes in an effort to reach an international consensus on this and other tax issues, including offshore tax havens. The European Union recently proposed a 3-per-cent sales tax on digital services aimed at large multinationals such as Amazon and Uber.
Liberal MP and committee chair Mark Eyking said the committee was ultimately convinced by testimony from “bricks-and-mortar” small-business owners − particularly in smaller communities – who are trying to compete against foreign online retailers.
“If they have a bookstore and they’re selling a book and have to charge GST and collect it and give it to the government, they feel it should be the same way if you’re buying it electronically and putting it on your Kindle or whatever,” he said.
Mr. Eyking noted that Quebec has said it will require Netflix to collect and submit sales tax and OECD countries are looking closely at the issue.
“Maybe there’s a movement,” he said. “Our committee is very focused on small and medium-sized businesses and how they can survive and prosper in Canada, and this is one of the issues they had.”
The committee also heard arguments in favour of and against raising Canada’s $20 duty-free limit on online crossborder sales – known as the de minimis – but did not take a position in its final recommendations.
The de minimis threshold is a point of contention in the continuing talks to renegotiate the North American free-trade agreement. The United States has indicated that it wants Canada to adopt a threshold that is comparable to its current de minimus of US$800.
The head of Revenu Québec, Eric Ducharme, told members of Quebec’s National Assembly on Thursday that several foreign companies that offer digital services have indicated they will co-operate with the province’s new policy.
“There’s been contact with Netflix, yes, and they will comply,” he told Quebec’s public finances committee. “The platform will be ready in the fall so they can register, and the first taxes will be collected in January, 2019.”
Conservative MPs on the federal committee issued a “supplementary” report, stating that the party agrees with the majority of the main report’s recommendations. However, it took issue with the call for the collection of sales taxes on services such as Netflix.
“The Conservative Party remains opposed to making Canadians pay unnecessary taxes on intangible products,” the party stated. “A new tax on Canadians who use online video-streaming services like Netflix and YouTube would not benefit Canadian small businesses – it would only create additional costs to Canadian consumers.”
NDP MP Pierre Nantel raised the issue in Question Period, urging the government to act immediately on the committee’s advice.
“Europe, Japan, Australia and many others make web giants pay their fair share. Quebec will do this soon and Quebec society is calling on the federal government to act,” he said. “Guess who is now on the list? The international trade committee, where Liberals have the majority. … What is the government doing?”
Liberal MP Joël Lightbound, Mr. Morneau’s parliamentary secretary, said Canada is working with its allies to find a co-ordinated approach. A spokesperson for Mr. Morneau noted that the minister recently said he is working with his G7 and G20 colleagues on finding an agreement on this by 2020.
With a report from Les Perreaux in Montreal