Some sort of ‘Netflix tax’ has to be in Canada’s future

Hardly anyone wants to pay more tax and no one likes it when something that is tax free becomes taxed.

But that, or something like it, is what the federal government needs to get its head around doing with online streaming services such as Netflix, Amazon, iTunes and Spotify.

Under Canadian law these foreign-owned companies don’t have to collect GST/HST or sales taxes from their Canadian customers because they don’t have brick and motor operations in this country.

Canadian broadcasters such as Rogers, Videotron, Shaw and Bell are required to contribute 5 per cent of their gross revenues to the Canadian Media Fund as well as collect taxes.

That’s a hugely tilted playing field that the government cannot afford to perpetuate. Why should foreign streaming services not have to pay their fair share when they’re collecting all the audience and financial benefits? This is especially critical going forward given revenues for those traditional broadcasters are declining because consumers continue to drop channels and services in favour of online-only viewing.

In fairness, the government hasn’t been standing still. Last year it entered into an agreement that would see Netflix spend $500 million in Canadian programming development over five years. It’s better than nothing, but it’s a Band-Aid at best.

The inequity here is fundamental. The government needs to level the table in one of two ways. Either it offers incentives or breaks to Canadian companies that make up for their having to pay, or they make the streaming giants pay a rough equivalent.

Why should foreign streaming services not have to pay their fair share when they’re collecting all the audience and financial benefits?

Neither of those is appealing, but the first is just not viable given the government doesn’t have the money, and appeasing Canadian operators would set another precedent that would ultimately be unsustainable. That only leaves the second option.

We’re not talking small dollars here. In Quebec, consumers will begin paying a tax on their monthly Netflix bill beginning next year. The Quebec government decided to legislate GST collection in order the level the playing field. The province calculated it is losing $270 million annually by not collecting sales tax from foreign online services.

So aside from the fairness question, there’s the matter of the federal treasury which badly needs fuel. Rosalie Wyonch, a policy analyst at the C.D. Howe Institute, argues Canada should follow Quebec’s lead.

She said in a recent Global News interview: “If Netflix were responsible for collecting and remitting GST, that could be around $52 million annually (for the economy).” And that’s not counting other digital streaming operations such as iTunes, Spotify and Amazon.

Australia, South Korea, the European Union and Japan are among jurisdictions that have already moved to correct the competitive disadvantage. We also know that Ottawa has looked at how they might get foreign streaming services to collect tax voluntarily. Fair enough. The optics and politics around voluntary participation are preferable to legislation making it mandatory.

But if the voluntary method doesn’t work, it’s past time for Ottawa to bite the bullet and act on this matter.