Consumers will foot the bill for digital services tax

Taxes are not what we’re lacking in Quebec. Indeed, Quebecers are the most heavily taxed people in North America.

But that hasn’t stopped the federal government from announcing, early this year, its intention to add one more tax onto the pile, this one on digital services.

This new tax would be a 3% levy on the total revenues of companies in the online services field. This means social media, online sales, online advertising, etc.

Behind the high-minded slogans about “fair shares” and “making multinationals pay” hide two other facts: that it is once again, as always, taxpayers who will foot the bill, and that the hoped-for benefits will likely not materialize.

In introducing this tax, the Trudeau government is taking its inspiration from France, which adopted just such a 3% tax on digital services in 2019.

The predictable result was a direct increase of two to three percent in the prices paid by consumers of these services, depending on the company. Instead of it affecting their profits, these companies simply passed the bill along to their clients.

In Canada, such an increase would cost consumers several billion dollars — up to $3.3 billion a year in fact, at a time when they are already facing 7% inflation, a level not seen for decades.

These price increases, which each and every one of us would pay, would far outstrip the $3.4 billion in revenue that the government expects to collect through such a tax over five years.

And that’s if the gains materialize. In France, for example, the government estimated that it would collect 400 million euros. Instead, it collected 277 million euros, or 30.75% less than initially projected.

That’s the biggest problem with the digital services tax: It overestimates the gains for the government, and underestimates the costs that we’ll have to pay.

We also need to consider the impact that the tax would have on Canadian companies. In 2021, they brought in $398 billion thanks to online sales according to Statistics Canada. This same study found that one in five wants to increase its online sales capacity permanently after the pandemic.

Adding on a new tax on revenues from online sales would therefore affect a very large proportion of Canadian companies.

At the moment, the government is proposing to impose this tax on all companies with domestic revenues of $20 million from online sales. This threshold is lower than it might seem, considering that large Canadian companies declared an average of $79 million in revenues from online sales. This gives a good idea of the scope of this tax.

If it’s adopted, many of our most successful companies would thus be overtaxed, which is to say penalized, for having dared to innovate and improve access to their businesses. This is exactly what happened in France. This digital services tax extended its tentacles so as to impact the big names of French tech, given the very expansive definitions used by legislators.

Yet there’s no reason to adopt this tax. At the moment, the proposed threshold of the global minimum tax agreement is 15%. Over the past 10 years, the large digital companies (Google, Amazon, Facebook, and Apple) have paid a tax rate of 24% on average.

It should come as no surprise that they actively support this agreement, since they already pay more than the proposed minimum threshold!

When you scratch beneath the surface of slogans like “fair share” and “make the multinationals pay,” it becomes clear that it’s just a roundabout way of increasing the taxpayer burden.

Federal government spin doctors can dress it up all they want, but at the end of the day, it’s always consumers who end up paying these taxes. Don’t you pay enough already?

Olivier Rancourt is an Economist at the MEI. The views reflected in this opinion piece are his own.