Quebecers have to start paying a Netflix tax — here’s why the rest of Canada doesn’t

Click to play video: 'Quebec says it will impose sales tax on Netflix'
Quebec says it will impose sales tax on Netflix
ABOVE: Starting Jan. 1, 2019, Quebec will impose sales tax on Netflix. – Oct 3, 2017

Editor’s note: This article has been updated to clarify Netflix’s content agreement with the Canadian government. 

Starting next year, Quebecers will have to pay a tax on their monthly Netflix bill — but the rest of the Canadian population won’t have to.

This comes after Quebec tabled its latest budget on March 27, saying it will require foreign online services, such as Netflix, Amazon, iTunes and Spotify, to collect GST from its consumers starting Jan. 1, 2019.

Quebec said it’s a way to level the playing field for local competitors, as foreign providers of digital content are not obligated to charge consumers GST.

The province said it’s losing $270 million annually by not collecting the sales tax from these foreign online services,  according to Bloomberg. By implementing these measures, Quebec expects it will recover $155 million in lost revenue over five years, Bloomberg reported.

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Last year, the Canadian government decided not to tax Netflix. But the content provider is expected to invest $500 million into Canadian programming over five years.

WATCH: Government ‘proud’ to partner with Netflix on Canadian content

Click to play video: 'Joly: Government ‘proud’ to partner with Netflix on Canadian content'
Joly: Government ‘proud’ to partner with Netflix on Canadian content

However, that decision sparked controversy, mainly in Quebec. That’s because Netflix did not commit to creating French-language content and because the province said it was unfair for local digital content companies who have to collect sales tax.

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Netflix did commit to spend $25 million on a strategy to develop the market for French-language content, but the lack of a contractual obligation to actually produce it came under heavy scrutiny in Quebec.

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“For services, Netflix and others, we are proposing legislative measures that will force these companies to register for our provincial sales tax regime,” Finance Minister Carlos Leitao said at a media conference on March 27. “They will need to collect the sales tax and to send it to us.”

Why rest of Canada does not pay Netflix tax

Foreign-based streaming services without a physical presence in Canada don’t have to collect or remit federal or provincial sales taxes. And since Netflix does not have a base in Canada, it does not have to collect.

Instead, it is up to consumers to pay the sales tax to tax collectors, but in reality, this rarely happens.

Because of this, Canadian competitors say not requiring Netflix to apply the same taxes that they do puts them at an unfair disadvantage.

Should Canada follow-suit?

Just like Quebec, other jurisdictions, such as Australia, Japan, South Korea and the European Union, have corrected the competitive disadvantage between foreign and domestic providers of digital services.

Rosalie Wyonch, a policy analyst at the C.D. Howe Institute, said Canada should follow Quebec’s lead.

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“Quebec is pushing the envelope in Canada for correcting competitive issues,” she said. “There is no good economic reason not to shift our policy.”

WATCH: Quebec says it will impose sales tax on Netflix

Click to play video: 'Quebec says it will impose sales tax on Netflix'
Quebec says it will impose sales tax on Netflix

Wyonch said that not only does it put domestic companies at a disadvantage, Canada is also losing out on a lot of revenue.

“If Netflix were responsible for collecting and remitting GST, that could be around $52 million annually [for the economy],” she said. And that’s counting other digital services, like iTunes, Spotify and Amazon, Wyonch added.
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Feds have considered it

Federal officials have looked at how the government can make online services like Netflix and Amazon voluntarily collect sales tax, according to the Canadian Press.

Pages of briefing notes provided to Heritage Minister Melanie Joly over the course of 2017 detail how certain governments around the world have required foreign-based streaming services to register with the government in order to collect and pay taxes, rather than imposing new taxes on the services.

The notes, obtained by The Canadian Press under the Access to Information Act, said countries should make it as simple as possible for companies to register with national tax offices to collect revenue on which they are currently missing out.

The federal NDPs have called on the Liberals to force Netflix to collect and remit taxes. However, Prime Minister Justin Trudeau said he does not want to make Canadian pay more taxes. He said Canadians “already paying enough for their digital subscriptions.”

— With files from the Canadian Press





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