Liberals’ digital services tax goes into effect despite warnings of American retaliation

Prime Minister Justin Trudeau’s government has implemented its digital services tax despite years of repeated warning that the United States would retaliate against such a move.

The digital services tax is a levy placed on technology companies that provide a digital service to Canadians, granted they earn at least $1.1 billion in annual global revenues and at least $20,000,000 annually in Canada. 

These include tech companies Meta, which operates Facebook and Instagram, as well as Google, Amazon, Uber, Lyft, Airbnb, Netflix, and Spotify. 

As of last week, the federal government began taxing 3% of all Canadian revenues from the companies. 

The government also plans to apply the tax retroactively to cover money the companies made since 2022, boostingthe government’s expected tax revenues.

Trudeau’s tech tax has angered the United States government, which has repeatedly warned a reciprocal move.

The Americans argue that the threshold the Trudeau government set was purposefully gerrymandered to target American companies while exempting smaller competing Canadian companies.

The United States Chamber of Commerce argues that the digital services tax violates the USMCA free trade agreement as it views the tax as effectively a tariff.

“Now that Canada is poised to pass this legislation, in the face of broad U.S. opposition, it is clear that a more robust response is called for—a response reliant on the trade tools you recently endorsed,” reads the chamber of commerce statement.

“Specifically, we urge USTR to initiate formal dispute settlement procedures with Canada, beginning with consultations under the U.S.-Mexico-Canada Free Trade Agreement (USMCA).”

A May 2024 report from the Computer & Communication Industry Association estimates that the DST will result in $1.0 to 2.3 billion in lost export revenues for American companies. The report also estimates that between 1,207-3,140 jobs will be lost.

The Canadian Taxpayers Federation’s Ontario director, Jay Goldberg, said that the DST is nothing but a “cash grab,” and that the government ought to scrap the tax before the U.S. government retaliates.

“Canadian consumers know that Trudeau’s Digital Services Tax is nothing more than a tax grab, plain and simple,” said Goldberg. 

“With providers virtually certain to pass along increased costs to consumers, Prime Minister Justin Trudeau is sticking Canadians with higher taxes and risking the possibility of a trade conflict with the United States.”