Public Accounts Committee on Nov. 17th, 2020

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Madam Chair, how much more time do I have?

[The Chair, Conservative, Kelly Block]

You have 45 seconds.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

I do wish to point out one section of the report that I found to be very interesting. It was section 3.52—and I don't know if there's a comment to it—where the AG report finds:

...that the Canada Revenue Agency had limited authority to collect data from third parties, such as banks and payment processors, compared with tax agencies in other countries. In contrast, more than 30 jurisdictions received third-party data related to value-added or sales tax invoices to complete compliance activities. For example, in the United States, all US payment processors must provide information to the Internal Revenue Service. Payment processors are required to report gross payments to sellers that receive more than US$20,000 and more than 200 separate payments in a calendar year.

Commissioner, if the CRA were to go down this road that the IRS is on, this would involve legislative changes. Is that correct?

[The Chair, Conservative, Kelly Block]

Give a very short response, Mr. Hamilton.

[Bob Hamilton]

I'll be very quick and just say that, yes, we obviously need to respect the legislative framework that we operate within, so we can only do what the legislation permits us. I would say, though, that with regard to third party data, the unidentified person requirement is something that we do have the authority to do. We have to go through courts to implement it, but it's one way that we can get from a third party information on activities that are happening in this space.

[The Chair, Conservative, Kelly Block]

Thank you very much.

We will now go to Mr. Blanchette-Joncas.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you, Madam Chair.

I want to thank the witnesses for being here today.

My question is for Ms. Hogan, the Auditor General of Canada.

The findings of the audit you tabled in May 2019 are quite straightforward. You showed very clearly that the government is losing an enormous amount of revenue as a result of lax policy. I won't engage you on that subject.

That loss of revenue amounted to nearly $169 million in 2017 and was estimated at close to $247 million in 2019. That's nearly a 50% increase in two years, without even taking the pandemic or exploding e-commerce into account.

Do you think it would be helpful to conduct a thorough review of the existing tax system?

[Karen Hogan]

As we noted in our report, the tax system has not really kept pace with the rapidly evolving digital economy. The policy change question should be put to the deputy minister, who is here today.

We checked to see whether the existing system was neutral. We found that it was unfair in some respects and offered the agencies some options for improving it.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

In that case, I'll put the same question to Mr. Rochon, the deputy minister of finance.

[Paul Rochon]

Thank you for your question.

You have to bear in mind that the government collects $38 billion in GST. Many factors are involved in deciding whether to levy a tax, and we at the Department of Finance conduct a lot of analyses on this sort of subject.

Ultimately, decisions about whether to tax and how to go about it are crucial to our democracy, as you well know. They are government decisions, and, therefore, ultimately for Parliament to make.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you for your remarks, Mr. Rochon.

I'm going to outline the current situation, since I've had time to analyze matters.

From May 2019 to May 2020, e-commerce roughly doubled, increasing 110.8%. Then, from February to May 2020, retail sales fell nearly 20%. So the situation's clear: e-commerce revenues are rising, we aren't taxing enough, and we're losing revenue on retail sales. The logical course would be to apply what we already have.

Ms. Hogan, the Quebec government has assessed its QST losses from the non-taxation of e-commerce. In 2017, it estimated those losses at $270 million, compared to the federal government, which estimated its losses at $169 million for the same period.

Let's make a quick calculation. The GST rate is 5%, about half that of the QST, which is nearly 10%. This means that GST losses on Quebec sales were approximately $135 million, given that Quebec's population is roughly 23% of Canada's.

Are your estimates conservative, given that those of the Quebec government show that far more revenue appears to have been lost as a result of the non-taxation of e-commerce?

[Karen Hogan]

It's very hard to compare our tax system to those of different parts of the country and other countries. Each one has a unique tax system.

The estimates we made during the audit were really based on available public market information. They're just estimates, an attempt to show the scope of the situation. I'd be inclined to say they're probably a bit low, but I don't have more detailed information on which to make a more accurate estimate.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

How would you explain the discrepancy between the two estimates?

They paint a completely incoherent picture. We're talking about several hundreds of millions of dollars.

[Karen Hogan]

For those kinds of details, I'll turn to one of my colleagues, Philippe Le Goff. He can describe the methodology we use in comparing the Quebec data.

[Philippe Le Goff, Principal, Office of the Auditor General]

Good morning, Madam Chair.

The methodology the office uses is very simple. As the Auditor General said, it's based on public data. You must bear in mind that our methodology focuses solely on intangible goods and services. The $169 million and $247 million figures are not associated with any physical good. They really are conservative estimates. Once again, we're talking about 2019. Our methodology is also based on data gathered by Revenu Québec, which uses Quebec's percentage share of total Canadian consumption of intangible goods and services. Our estimate is very conservative.

[Maxime Blanchette-Joncas, Bloc, Rimouski-Neigette—Témiscouata—Les Basques, QC]

Thank you.

[The Chair, Conservative, Kelly Block]

Thank you very much.

We will now move to Mr. Green for six minutes.

[Matthew Green, NDP, Hamilton Centre, ON]

Thank you very much, Madam Chair.

I think the questions that my friend Maxime has raised are very important. I think they warrant some more depth and understanding, particularly section 3.13, which states:

Overall, we found that the Canadian sales tax system did not keep pace with the rapidly evolving digital marketplace. On the basis of publicly available data, we estimated losses of $169 million in the GST on foreign digital products and services sold in Canada in 2017. In addition, the federal government could not assess and collect all sales taxes on e-commerce transactions.

I appreciated that Ms. Hogan, in preparation for this meeting, updated the information with the estimated amount of $247 million in 2019, with the increase of 50% in two years. This is astounding, and this is, again, as Mr. Blanchette-Joncas has identified, without the COVID variable of what I think will be astronomical figures in 2020.

For digital products and services, the Canadian sales tax system has placed Canadian businesses at an unfair disadvantage in relation to its foreign investors. I'm sure even my Conservative friends, who have so passionately defended big multinationals' ability to operate without taxation.... I want to call your attention to section 3.14, which states:

We found that existing legislation, combined with the Canada Border Services Agency’s poor data management of low-value shipments imported into Canada...placed Canadian businesses at an unfair disadvantage in relation to foreign vendors. According to the Department of Finance...the situation could have encouraged domestic vendors to move their operations abroad and could have discouraged foreign investment in Canada.

Throughout this report, we have heard here in testimony today that the CRA claims it does not have the legislative authority to conduct compliance activities, especially on digital vendors. If you don't have the right tools in your tool box, how can you be expected to do the job we're asking of you?

The question is, when was the legislation last reviewed regarding e-commerce digital vendors? Have you discussed this lack of legislative authority with the minister?

[The Chair, Conservative, Kelly Block]

Is your question for Mr. Hamilton or Mr. Rochon?

[Paul Rochon]

Why don't I take the question?

I have a point of clarification as it relates to the pandemic. The vast majority of e-commerce transactions in Canada are subject to the GST. What we're talking about is e-commerce transactions coming from abroad. I think that's an important point of clarification.

As I indicated in my opening remarks, this is a topic that we have had under discussion and review for some time, going back several years. The department did a consultation in 2014, and this matter has been under ongoing discussion for some time.

[Matthew Green, NDP, Hamilton Centre, ON]

That's actually more disturbing for me to hear, because you're telling me that this government, this Liberal government particularly since the last election, has known about this for six years, and yet no action has happened.

Do you anticipate new legislation will be introduced? Is there anything this committee can do to help expedite this?

[Paul Rochon]

Madam Chair, as you know, our role is to provide advice and analysis. We have done that consistently over the years, which I think, in all humility, the Auditor General's report points out.

[Matthew Green, NDP, Hamilton Centre, ON]

With all of that being said, is there something that this committee can do specifically? Obviously the finance committee hasn't picked this up in the last six years. We know this to be a massive revenue shortfall. We have a government that just this week voted against taxing the most ultrawealthy in this country. It seems to me that this is not an expense problem. This is a revenue problem.

Is this something, in your opinion, that we should bring to this committee for closer research and study?

[Paul Rochon]

Yes, I think it's an entirely legitimate question for the finance committee to be looking at, particularly in the context of the ongoing growth and evolution of e-commerce, which I think we can all fully anticipate the pandemic will have accelerated to a degree.

There are many aspects to this question. It's not a simple question, as even some of the questions that have been posed at this committee underscore. There are questions of incidence. There's a broad balance that needs to be struck in this area.

[Matthew Green, NDP, Hamilton Centre, ON]

I'll take that as a yes, Mr. Rochon.

I'm also alarmed that the Department of Finance did not agree with the terms of the audit, nor did they acknowledge the suitability of the audit criteria. What was the reason for this disagreement?