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Taxing Airbnb and Netflix may level the playing field, but it won't likely change consumer habits

Experts say Netflix probably won't lose subscribers over the sales tax.
Experts say Netflix probably won't lose subscribers over the sales tax.

Canadian consumers are likely to end up forking out more for U.S. streaming services such as Netflix and short-term rentals on Airbnb once a new federal regime forcing tech platforms to charge sales tax comes into effect, but it isn’t clear that the new taxes will have a significant impact on consumption patterns, industry watchers say.

Ottawa’s fall economic statement Monday proposed the new “fair taxation” of cross-border digital products and services regime, which is to come into force on in July 2021. The government said the current tax regime, under which these players don’t collect and remit the goods and services tax (GST) or harmonize sales tax (HST), has given “foreign-based digital corporations an unfair advantage, and undercuts the competitiveness of Canadian companies.”

Some, like the hotel industry, say the government’s proposed tax changes will level the playing field.

“This is about fairness,” said Alana Baker, spokesperson for the Canadian Hotel Association.

“Canadian hotel operators pay corporate income tax and must charge and remit HST at the point of sale, but digital players today get a tax holiday,” Baker said.

Still, industry watchers don’t expect much to change in the way of consumer behavior, particularly when it comes to streaming services.

Kaan Yigit, president of Solutions Research Group, said he doesn’t think sales tax on Netflix will send any customers running to domestic video streaming services like Bell Media’s Crave, which already charges  GST.

“Netflix has a well-defined value proposition, a very extensive and growing library, and is extremely well regarded by Canadian subscribers, with a very high 88 per cent ‘likely to recommend’ score,” he said. “Tax on it will not result in subscriber losses or churn.”

Netflix already collects and remits sales tax in two Canadian provinces, Quebec and Saskatchewan, and a spokesperson said the streaming service “will work collaboratively with the federal government on this issue, as (the company has done) previously in Quebec and Saskatchewan.”

She declined to comment on whether the amount of the tax top-up, if imposed in other provinces as expected, would be borne by consumers or whether the cost of the service would drop to accommodate it.

A spokesperson for the Canadian Association of Broadcasters declined to comment on the planned tax changes and how they are expected to affect the competitive landscape with foreign players such as Netflix and Spotify. However, he said the real win for traditional broadcasters in the government’s economic roadmap came in the form of a licensing fee waiver that is expected to provide “up to $50 million in relief” to help them stay afloat and continue providing broadcast services across the country.

“Given the profound structural challenges faced by the sector, and the economic impact of COVID-19 on their businesses, this waiver will allow many private broadcasters to persevere through the tough year ahead,” said Kevin Desjardin, president of the CAB.

The fall economic statement also set a timeline for another less-defined tax that is to apply to foreign-owned digital platforms beginning in 2022.

Michael Geist, a law professor at the University of Ottawa, suggested that if that takes the form of a government tax on revenue it is likely to be far more controversial than the GST or harmonized sales tax, which would simply be collected from Canadian consumers and remitted to the Canadian government.

He said Canada appears to be moving “in the same direction” as countries such as France, which faced retaliatory tariffs from the U.S. after attempting to extract tax from the tech giants.

“Those taxes will have an impact on U.S. tax revenues, so we can expect a response,” said Geist, who is also the Canada Research Chair in internet and e-commerce law.

Charlie Urbancic, a spokesperson from Airbnb Inc., said the company is reviewing Ottawa’s planned tax regime changes and looks forward to “engaging in consultation on that matter.” He declined to comment further on how the new taxes would affect the online marketplace for short-term accommodations in Canada.

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