Experts say that the federal government’s decision to impose taxes on digital giants like Netflix and Amazon will lead to price increases.
In its fall economic statement, the government unveiled a plan to force foreign technology companies to collect HST and GST on services sold to Canadians. The new policy would apply to “foreign-based vendors selling digital products or services to consumers in Canada.”
It would essentially apply to services such as Amazon Prime Video, Spotify and Airbnb. The government has stated that Canadian companies already collect these taxes, and that foreign companies should do the same.
University of Ottawa professor Michael Geist outlined in a blog post that “the reality is that when applicable, sales taxes are paid by consumers, not the companies.”
“Companies resident in Canada are merely required to collect and remit the applicable sales taxes. The tax does not come out of earnings or represent a gain for the companies, who act as intermediaries by collecting the sales tax and remitting it to the government,” he outlined.
Geist also outlined that the application of taxes will lead to increased costs for consumers, but that there will be equality of treatment between Canadian and foreign streamers.
Further, Dwayne Winseck, a professor at Carleton University told the CBC that he expects that foreign technology companies are going to add the price of the tax to the total sale price of services.
“I mean, this is really not a very substantial amount, when we’re talking about corporate finances,” Winseck told the CBC.
The government has stated that this change will ensure that digital corporations pay their “fair share” just like any other company operating in Canada and that this should create a level playing field.
Under current rules, foreign-based digital businesses can sell their goods and services to Canadians without charging GST and HST.
“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,” the government notes.
The new changes are scheduled to go into effect on July 1st, 2021. The government notes that the measure will increase federal revenues by $1.2 billion over five years.