JAY GOLDBERG: Consumers win with the demise of the Digital Services Tax

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Ottawa’s plan for a Digital Services Tax (DST) is gone. And consumers are the ones who should be celebrating this victory.
The Carney government didn’t give up on the Liberals’ dream of imposing a massive new tax on Canadians easily. It took the risk of an escalating trade war with the United States for the federal government to finally see the light of day.
“Rescinding the digital services tax will allow the negotiations of a new economic and security relationship with the United States to make vital progress,” said Finance Minister Francois-Philippe Champagne in a statement on June 29.
While some are trying to paint this decision as Ottawa bending the knee to U.S. President Donald Trump, it’s worth remembering that the Biden administration was just as opposed to the DST as the Trump administration and there was always the risk of a trade conflict with the United States as a result.
The Trudeau government first pushed the DST through Parliament last year, but the tax itself wasn’t due to be imposed until July 1, 2025.
The timing of the Trump administration’s demand that Canada drop this tax wasn’t arbitrary or an accident. The tax was due to be imposed on American companies, who would then surely pass it onto Canadian consumers, in the middle of trade negotiations. For the United States not to make this demand of the Canadian government would have been foolish on its part.
The DST was designed to target large foreign companies operating social media platforms and online marketplaces earning revenue from advertising online, such as Airbnb, Amazon, Facebook, and Google.
But, as everyone knows, companies don’t simply take new taxes lying down. They pass those costs onto consumers. Yes, these big American firms would have technically been paying the DST. In turn, however, they would have raised prices on Canadian consumers to cover the cost.
When the DST was in its proposal stage a couple of years ago, the Parliamentary Budget Officer estimated it would bring in $7.2 billion in federal tax revenue over the course of five years.
Where was that money going to come from?
Even the PBO recognized that companies wouldn’t simply foot the bill.
“Businesses in the targeted sectors will adjust their services and prices in response to the new law,” wrote the PBO in its report. In other words, at a time when a record number of Canadians are turning to food banks and 50% of Canadians say they’re $200 away from not being able to pay their bills, the Liberal government wanted to impose an annual tax hike of $1.4 billion on Canadian consumers.
It’s worth keeping in mind what the Biden administration’s trade representative said at the time the Trudeau government passed the DST into law. Former USTR Katherine Tai said the U.S. would use “all available tools” and “do what’s necessary” to respond.
That’s not the Trump administration. That was the Biden administration.
A year ago, the Computer and Communications Industry Association, which represents tech companies like Amazon, Apple, and Uber, urged the Biden administration to fight back against the DST. “With Canada’s DST now law, the time has come to announce (retaliatory) action,” said the association’s vice-president, Jonathan McHale.
The Liberals had been warned for years, by both the Biden and Trump administrations, that retaliation would come should the DST come into force. And industry had been calling for that retaliation under both administrations as well.
By announcing that the government will rescind the DST, Prime Minister Mark Carney made a move that allowed for the immediate restarting of trade negotiations between Canada and the United States.
And hopefully this eleventh-hour move will ensure that Canadian consumers don’t see the kind of price hikes that would have been imposed had the tax been allowed to go into effect.
The DST was always a bad policy. No matter the reason it was finally axed, Canadian consumers should be celebrating.
Jay Goldberg is the Canadian Affairs Manager at the Consumer Choice Center
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