AFTER THE UBER TAX, IS NETFLIX NEXT?
TORONTO• The federal government’s decision to slap sales taxes on ride-sharing services like Uber may pave the way for sales taxes on digital services like Netflix, industry watchers say.
Just don’t expect it to happen as quickly, given ongoing attempts to create common global standards for taxing digital services and confusion over exactly what Canadian politicians mean when they say “Netflix tax.”
The tax on Uber — the 2017 budget included amending tax rules to ensure ride- sharing companies pay the same GST and HST as taxis “to level the playing field” — indicates the government may extend sales taxes to video or audiostreaming services like Netflix or Spotify, said Michael Geist, Canada Research Chair in Internet and E-commerce Law at the University of Ottawa.
Uber may describe itself as an app or digital service, but there wasn’t a compelling argument against a sales tax since its drivers provide a physical service in Canada, Geist said in an interview.
“No one likes paying extra sales taxes, but I think we can understand why the government would adopt that policy,” he said.
He thinks it’s inevitable the government will go the same route and extend the sales tax to digital services like Netflix, which generally don’t pay sales taxes because their operations are based elsewhere. ( Some customers may pay HST for Netflix if, for instance, they buy the service through Apple TV, which charges tax since Apple has a physical presence in Canada.)
“This is not the same as mandating Netflix pay a percentage of their revenue to fund CanCon ( Canadian content) in the way that a broadcaster or a broadcasting distribution undertaking would,” Geist said. He supports the former but opposes the CanCon tax, pointing to a recent Canadian Media Producers Association report that found foreign services spend more than Canadian distributors on financing English TV programming.
“People are investing in producing in Canada, and they’re doing it without any legislated mandate to do so,” he said.
Consumer advocacy group OpenMedia agrees, calling a sales tax a “sensible alternative” that most con- sumers would understand.
“It’s infinitely preferable to a monthly tax on peoples’ Internet bills or a tax that would target Netflix or other online delivery platforms,” OpenMedia’s David Christopher said.
But it will be more complicated to implement given the variety of online services to which a sales tax might apply. While Netflix is an obvious target with an estimated five million Canadian subscribers, there are questions over how big an online service must be for the cost of collecting and enforcing sales taxes to outweigh the actual revenue generated.
For example, it might not be worth it to collect sales tax for an Italian streaming service that only a handful of Canadians subscribe to, Geist said. Still, the government must determine a threshold.
On top of that, the Organisation for Economic Cooperation and Development and the G20 are working to create common standards for the taxation of digital services.
The Macdonald- Laurier Institute’s Sean Speer said a broader discussion is needed as more and more transactions occur with Internet firms that are based in other jurisdictions, not just in the broadcasting space but across the economy.
“I’m quite sympathetic to the idea that we need to modernize the sales tax regime to deal with this growing share of economic transactions outside the scope of the consumption tax. That probably can and should include Netflix,” said Speer, a senior fellow at the marketfriendly organization.
He supports extending the sales tax to Uber, though he doesn’t see the reason for implementing it as a one-off and not as part of a broader digital tax policy.
But Speer emphasized the difference between sales taxes on Netflix and a Netflix tax that would force the video- streaming company to subsidize Canadian content. The institute strongly opposes that, and believes broadcasters shouldn’t have to subsidize CanCon either.
THAT PROBABLY CAN AND SHOULD INCLUDE NETFLIX.