Canada Faces Tech Policy Challenge as Digital Services Tax is Scrapped

Canada’s decision to abandon its digital services tax has sparked significant discussion among experts and policymakers, raising questions about the country’s approach to technology taxation and international negotiations. Frank McKenna, former Canadian ambassador to the United States, now deputy chair of TD Bank Group. He has been speaking out about the dangerous precedent this move…

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Canada Faces Tech Policy Challenge as Digital Services Tax is Scrapped

Canada’s decision to abandon its digital services tax has sparked significant discussion among experts and policymakers, raising questions about the country’s approach to technology taxation and international negotiations. Frank McKenna, former Canadian ambassador to the United States, now deputy chair of TD Bank Group. He has been speaking out about the dangerous precedent this move sets. His and Michael Geist’s, a law professor at the University of Ottawa, experiences take us behind the scenes of this tricky landscape. Jointly, they dive into the fascinating web of economic motivations and international politics.

According to the Canadian federal parliamentary budget officer, the digital services tax will bring in approximately $7.2 billion in revenue. This new revenue could be phased in over five years. The government has now decided to repeal the tax. This tax was an attempt to address perceived unfairness in the way that big tech companies are currently operating in Canada. That ruling brought back the original status quo pre-tax ballot proposal. Many proponents of the TPP claim that it undermines Canada’s ability to negotiate.

Implications of Scrapping the Tax

As Canada backs down on the digital services tax, tech giants’ accountability in our home and native land continues to be an area of concern. Several countries still maintain similar taxes, which were designed to ensure fair contributions from major players like Google and Facebook. McKenna later underscored that Canada’s initial pivot came under elevated diplomatic pressures, especially from the United States. He noted that the tax was breaking U.S. relations. In fact, because of this pesky requirement, President Donald Trump suspended trade negotiations with our neighbors to the north on the matter.

McKenna noted that Canada’s approach appeared too ambitious and not adequately supported. He stated, “The Canadian government, for too long, has almost looked at these tech companies like an ATM where they just want to do withdrawals to help fund their policies.” This viewpoint underscores a larger tension in how governments try to strike a balance between generating revenue and maintaining beneficial international relations.

Geist criticized the government’s retreat from the Organization for Economic Co-operation and Development’s plan for a multilateral tax approach. Fine insists that this was a huge missed opportunity, arguing that Canada should have smartly kicked the tax down the road. “Had they provided a bit of a deferral … for, say, 30 days … that would have offered up an opportunity for this to be one of the cards you could play in the negotiations,” he explained.

Concerns Over Consumer Impact

Today, several experts sounded the alarm that the cancellation of the digital services tax will result in billions of dollars paid by Canadian consumers—businesses and citizens alike. Geist further pointed out that platforms such as Google have recently begun charging Canadian advertisers explicit fees. They’re taking these steps in advance of the tax coming into effect. “It’s clear many of the charges were ultimately going to be borne by Canadian business, and arguably, at the end of the day, by Canadian consumers,” he said.

McKenna reiterated these concerns. She cautioned consumers may end up holding the bag with higher prices as the mega-tech companies look to recoup their earnings. The expected revenues from the tax are enormous. Without this tax, Canada will find it difficult to extract fairer contributions from these companies.

McKenna urged a re-examination of Canada’s tech policy framework. He suggested that “we need a real reset, and I think a lot more realism when it comes to some of our tech policy.” This sentiment indicates a real shift—a growing understanding that Canadian policy needs to respond to a rapidly changing global economy and technological landscape.

Navigating Diplomatic Challenges

McKenna’s experience as a former ambassador has given him great depth in understanding the nuances of international negotiations. He underscored that it is very different negotiating with the U.S. leadership today than it was in past administrations. “Negotiating with the president is an extremely difficult task because there are a lot of issues, personality issues, that are involved in it,” he said.

He contrasted today’s whistleblower treatment to that of previous administrations under George W. Bush and Bill Clinton. Those leaders were able to have civil conversations, even when they didn’t see eye to eye. That’s not what we’re receiving now,” he said. McKenna says that this change has muddied Canada’s waters on many fronts, from trade negotiations, to bilateral relations with China or India.

Canada is clearly at an inflection point when it comes to taxing technology and foreign relations. Thought leaders such as McKenna & Geist point to the importance of strategic foresight and soft, but deft, diplomacy. McKenna emphasized that “the timing of this is simply not great,” urging policymakers to consider their long-term objectives in a rapidly changing global economy.

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