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Olivier Rancourt: Large cost for little upside: Why the government’s digital services tax is not worth the trouble

Commentary

Other authors on these pages have recently set out arguments in favour and against the Online News Act. But it’s not the only policy proposal from the Trudeau government concerning online commerce. It also has plans to impose a tax on digital services. The case for the targeted tax is weak. The consequences could be significant.

This new tax, which was first articulated in the 2020 Fall Economic Statement and further advanced in the 2021 Budget, would be a 3-percent levy on the total revenues of companies in the online services field such as social media, online sales, online advertising, etc. Under the government’s proposal, it would enact enabling legislation for the new tax but then delay implementation to see if other countries adopt their own version of the digital services tax.

Some countries have already moved in this direction. The Trudeau government’s proposal, for instance, takes its inspiration from France, which adopted just such a 3 percent tax on digital services in 2019.

What were the result? Research finds a direct increase of 2-3 percent in the prices paid by consumers of these services, depending on the company. Instead of it affecting their profits, in other words, the companies downloaded the cost to their customers.

What about government revenues? The Canadian government estimates that its digital services tax would generate $3.4 billion in revenues over a five-year period, but the French experience suggests that such revenue gains are unlikely to materialize. When France enacted its tax, the government estimated that it would collect 400 million euros in annual revenues. Instead, it only collected 277 million euros, or 30 percent less than initially projected.

Herein lies the big 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 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 were 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 French technology firms due to the expansive definitions used by legislators.

Separate and apart from these high consequences of the government’s tax proposal, the case in its favour is weak. Readers will recall that the OECD/G-20 has notionally agreed to a minimum corporate tax regime of 15 percent. Yet, over the past 10 years, the largest digital companies (such as Google, Amazon, Facebook, and Apple) have paid a tax rate of 24 percent on average. It should come as no surprise therefore 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 the costs and consequences of the government’s proposal for a new digital services tax could be significant and its upsides are weak.

Jeremy Roberts: The battle to end the time change still needs allies

Commentary

In 2020, I passed a Private Member’s Bill that authorized Ontario to move to permanent Daylight Savings Time, which would give us more daylight in the evening during winter. The bill received unanimous support from all parties and is on the books, waiting to be brought into force.

So what’s the wait? Can’t we just pull the trigger and end this outdated relic once and for all?

Sigh.

Unfortunately, it’s not that simple.

As much as I would have loved my bill to start immediately, the reality of legislating is that you must consider multiple perspectives on an issue.

That’s why my bill had a caveat: Quebec and New York State need to join us.

There were sound reasons for this. As it relates to New York, Ontario benefits from being in the same time zone as the markets in New York City. Maintaining this commercial advantage is important. As it relates to Quebec, a unilateral change in Ontario would leave half of the federal government departments marooned on separate time on the Gatineau side of the Ottawa river for half the year.

As such, while Ontario has now passed the law and kick-started the discussion, we are still waiting on Quebec and New York to join in.

So where are we today?

Well, sadly not very much further than we were at Spring Forward 2022.

Quebec has not made any moves. When my bill was first passed, Premier Legault indicated that he was “open to the idea”. More recently, a spokesperson to the Quebec Justice Minister told MTL Blog that “the Quebec Government is always open to analyzing this issue.”

Openness is great, but we need someone to pick up the ball. Given that the issue was passed as a PMB in Ontario, this would be a great issue for a backbencher to adopt in Quebec. It has the unique benefit of being both populist and evidence-based—a great combo for a legislator.

New York State is much more complicated.

While they can introduce legislation to move to permanent DST (as has been done by other states), they would need to receive authorization through federal legislation. The Uniform Time Act of 1966 grants their federal government jurisdiction over this issue.

Thankfully, U.S. Senator Marco Rubio is on the case. The Senate has passed Rubio’s Sunshine Protection Act, which would allow states to move to permanent DST. An identical bill has been brought forward in the House of Representatives and, since February 2021, it is waiting to be called to committee for study.

But let’s not lose hope!

From the day I introduced my bill to when it received royal assent, it took 55 days. That included a committee hearing and two legislative debates.

It happened so quickly because it is popular and backed up by evidence.

A Narrative research poll in 2020 found that 85 percent of Ontarians support the idea. This would back up the anecdotal evidence I collected through email correspondence and letters during my time in office.

And the evidence for ending the time change is substantial.

The time change has been linked to, amongst other findings, an 8-percent spike in depression rates, a 24-percent increase in heart attacks amongst at-risk populations, an 8-percent increase in strokes, and a 10-percent increase in fatal car crashes. Moreover, studies have found that permanent DST could cause a boost to retail activity through additional hours of evening sunshine.

So, what’s next?

Well, we as citizens need to put the pressure on legislators. Despite being a populist issue, the cause of permanent DST is only salient twice a year. Now is the time to write to your MNA if you live in Quebec, or tell your family in the U.S. to write to their congressmen.

It is my fervent hope that Ontario can bring my bill into force in the near future. Time’s up on Fall Back.