The ‘Netflix-tax’ dilemma isn’t going away

Let’s give newly-minted NDP leader Jagmeet Singh some credit: He’s only just been elected, and he is already demonstrating he will not be tied to previous NDP dogma. A perfect example was his statement last week that an NDP government would impose sales taxes on Netflix and other foreign-owned internet companies that operate in Canada.

Because they are not technically taxpaying Canadian firms, they are not obligated to collect HST from customers. Domestic companies doing the same work are required to collect tax.

Singh’s proclamation is interesting for a couple of reasons. First, as noted, it illustrates that he’s not married to history. The NDP promised during the 2015 that it wouldn’t impose a so-called ‘Netflix’ tax. But now that the Trudeau government has made it clear it will not address the inequity, the NDP can wade in and appeal to more progressive voters.

And second, while Singh is the first federal political leader to finally give in to increasing pressure and support a tax, he won’t be the last. The Trudeau Liberals have had two years to find a way to level the playing field, and have failed to do so.

Recently it was announced that Netflix would invest $500 million over five years to set up a Canadian production arm. Both the company and the government insist that investment isn’t linked to the tax issue, but that’s just spin. Clearly, Netflix wanted to seen as helping to level the playing field by investing in Canada.

The spin didn’t fly. In most Canadian quarters, it was seen as a transparent ploy. Half a billion dollars is nothing to sneeze at, but compared to the indefinite return Canada would realize if these services were taxable, it’s peanuts.

A growing number of jurisdictions have already moved to tax services such as Netflix, Hulu, Amazon and Apple. Alabama, Illinois, West Virginia and Maine are among states that have taxes or are looking at them. Even local governments, as in Chicago, are considering the idea. Australia is doing it. And in Quebec, the finance minister says Netflix will face a provincial tax that is expected to inject $20 million annually into the treasury.

And why not? These are multibillion dollar enterprises, raking in massive profits from every jurisdiction they serve. Why should they be able to avoid taxes like the HST when domestic players have no choice but to comply?

Are there other options? Tax breaks for domestic players? Maybe, but that’s tinkering at the edges. Both the Liberals and Conservatives say they won’t entertain taxing offshore broadband services. Fair enough. But let’s see them explain why they’re giving preferential tax treatment to foreign-owned companies. That should be interesting.