The recent announcement by Torstar and Postmedia of the closure of 40 local Canadian newspapers is devastating news not just for the hundreds of workers who have lost their jobs, but for all the people in the affected communities who lose access to local news.
The federal Liberal government's outdated tax policies are largely to blame. They have given foreign-based e-commerce companies such as Google and Facebook a "pay no taxes" special deal that puts Canadian newspapers and broadcasters, who have to pay corporate income taxes and charge HST/GST, at a huge disadvantage.
Google, Facebook and other foreign e-commerce companies have been exempted from paying taxes by the Canada Revenue Agency because they have no physical presence in Canada and therefore are deemed not to be "carrying on business" in Canada. This policy is outdated.
The foreign-based e-commerce sector now has revenues of more than $20 billion a year from sales in Canada, and just Google and Facebook together capture more than 64 per cent of all internet advertising dollars spent in Canada — over $2.4 billion. Internet advertising is growing rapidly and now captures 34 per cent of all ad spending, compared with 30 per cent for television, 13 per cent for daily newspapers, and 14 per cent for radio.
Canadian companies are losing because of unfair competition to foreign companies that pay little or no taxes.
Foreign e-commerce companies are squeezing out Canadian media companies, taxi services. hotels and retailers, including many small businesses. Good jobs are being lost. Canadian companies are losing because of unfair competition to foreign companies that pay little or no taxes.
The European Union, New Zealand, Australia, Norway, South Korea, Japan, Switzerland and South Africa have modernized tax laws to respond to changing e-commerce reality. The OECD in its BEPS Action Plan on Addressing the Tax Challenges of the Digital Economy has recommended ways that governments can collect value added taxes where the product is purchased.
While the 2017 federal budget did include a requirement that ride-share businesses pay the GST, other foreign digital economy players have not been forced to play on a level playing field. Failure to update our tax policy creates unfair competition, causes significant job losses in the journalism, media and cultural sectors, threatens the vitality of Canadian culture and squanders the opportunity to raise several hundred million dollars in revenue for both federal and provincial governments.
The government should not be bailing out local newspapers or giving them tax cuts. But they should give them a fighting chance of survival. If they don't act soon, we may lose many more Canadian newspapers.
Canadians for Tax Fairness has recommend that the Canadian government level the playing field by ending the GST/HST tax exemption for foreign electronic commerce companies (above a determined sales threshold) that sell to Canadians and requiring them to collect and remit GST/HST and PST to federal and provincial governments on their sales in Canada. We estimate this could raise over $2 billion in taxes a year. (Two-thirds of this would go to provincial governments, with $600 million for the federal government.)
We also suggest requiring that all foreign e-commerce companies with Canadian income above a certain threshold pay corporate income tax on profits from products or services sold or rented in Canada. It is difficult to estimate how much revenue this would raise as large foreign companies like Google and Netflix do not separate out their Canadian earnings in their financial reports but it could be as high as $600 million a year.
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