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The cost of digital services and goods sold by foreign companies like Netflix will rise under a tax plan the government wants to put in place next year, experts said Tuesday.
Ottawa said in its tax update released Monday that it will require multinationals to raise GST or HST on digital products and services, which it believes would add up to $ 1.2 billion over five years.
Sometimes labeled a “Netflix tax,” the measure also applies to other services such as Amazon.com Inc.’s Prime Video or Spotify’s audio streaming service, as well as digital products such as software applications.
The government says Canadian companies already collect those taxes when making digital sales, so it’s only fair for foreign multinationals to do the same.
KPMG tax partner Joe Micallef said it is likely that Canadians will end up paying taxes collected for the government by foreign multinationals.
“At this time, the way they provide their services, they are not responsible for the collection,” Micallef said.
“And so, effectively, it would mean that these allegations would appear on [their] invoices. “
A regular monthly subscription for a streaming service that provides video or music would be a simple calculation, with the tax rate applied to the purchase price.
But Micallef said it’s harder to estimate how much additional taxes individual consumers, or businesses, will pay for other types of digital purchases, he said.
Something like gaming software might cost little or nothing, but it offers the option of later charges to add features that enhance the experience.
“How many times? How many transactions? It adds up,” Micallef said.
Leveling the playing field
Dwayne Winseck, a media researcher at Carleton University in Ottawa, expects companies to add the tax price to the total sales price.
“I mean, this isn’t really a very large amount when it comes to corporate finance,” said Winseck, who is a professor of journalism and communications.
He said the term “Netflix tax” has become highly politicized and is often used as a “code” to level the playing field between US-based digital media companies and traditional Canadian broadcasters.
“And if the idea is to create a level playing field between these two services, then that makes perfect sense,” Winseck said.
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