Consumers will foot the bill for Trudeau’s digital services tax

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Just another way of increasing the taxpayer burden

Olivier Rancourt

Earlier this year, the federal government announced its intention to add one more tax onto the pile already being paid by taxpayers, this one on digital services.

This new tax would be a three per cent 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.

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In introducing this tax, the Trudeau government took its inspiration from France, which adopted just such a three per cent tax on digital services in 2019.

The predictable result in France was a direct increase of two to three percent in the prices paid by consumers of these services, depending on the company. Instead of 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, at a time when they are already facing seven per cent inflation, a level not seen for decades.

These price increases, which 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. The French government, for example, estimated that it would collect 400 million euros. Instead, it collected 277 million euros, or 30.75 per cent 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 consumers will have to pay.

We also need to consider the tax’s impact 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 permanently increase its online sales capacity after the pandemic.

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

The government proposes imposing 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 precisely what happened in France.

Yet there’s no reason to adopt this tax. Currently, the proposed threshold of the global minimum tax agreement is 15 per cent. Over the past 10 years, large digital companies (Google, Amazon, Facebook, and Apple) have paid a tax rate of 24 percent 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, consumers always end up paying these taxes. Don’t you pay enough already?

Olivier Rancourt is an Economist at the Montreal Economic Institute.

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Troy Media is an editorial content provider to media outlets and its own hosted community news outlets across Canada.

By Olivier Rancourt

Olivier Rancourt holds a master’s degree in economics from the Université de Montréal. His master’s thesis project examined political bias in the U.S. Department of Justice’s filing of antitrust cases. During his university career, he held several positions in the Economics Students’ Association at the Université de Montréal (AÉÉSÉUM). He joined the MEI team in January 2021.

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