Public Accounts Committee on Nov. 9th, 2017

[Brad Loynachan]

Correct.

[Alex Nuttall, Conservative, Barrie—Springwater—Oro-Medonte, ON]

Possibly 1%, and possibly 1.5%, when their banks and our banks charge far more. No wonder they're doing it. Increase your interest rates, and you'll fix the problem.

[The Chair, Conservative, Kevin Sorenson]

Thank you.

We'll now move to Mr. Chen, please.

[Shaun Chen, Liberal, Scarborough North, ON]

Thank you.

I'm looking at this report and I have many concerns, as some of my colleagues have already expressed. One of them is the fact that 20% of goods crossing the Canadian border are misclassified. For example, $136 million was refunded to importers in one fiscal year due to retroactive changes. I am looking at the fact that when there is a non-compliant importer, the penalties are so low: $150 for the first offence, $225 for the second offence, and $450 for the third and subsequent offences.

To me, there seems to be a better incentive for importers to potentially misclassify items. Once they have crossed the border and the Canada Border Services Agency has not inspected them, they can then come back four years later. In the absence of government documentation, we are then relying on the importer's documentation, and then we are paying out to the tune of $136 million in one fiscal year.

I know the agency is looking at reviewing the penalty, but we need to really strengthen the fact that we need to deter people from making these types of misclassifications.

When it comes to the penalties, what progress has the agency made in terms of where that will end?

[John Ossowski]

As I mentioned, no refund is given without documentary evidence, and it's not just the importer's documentary evidence. We swim upstream to the supplier side and actually validate what was being imported. Just to be clear, it's not just you make a request and you come in and change things and get a refund cheque. We actually do the due diligence to validate that refund.

[Shaun Chen, Liberal, Scarborough North, ON]

Can you give me an example? You're saying you would verify with the supplier. If the supplier is 5,000 kilometres away, what type of communication or evidence would you seek from them?

[John Ossowski]

We would do a verification of the books and records. For example, the $72 million that I referred to on the chicken reverification assessments that we've done were books and records verifications, and they resulted in $72 million of revenues to the crown.

[Shaun Chen, Liberal, Scarborough North, ON]

You're still relying on documentation from third parties, right?

[John Ossowski]

From the company and from the supplier to validate.

[Shaun Chen, Liberal, Scarborough North, ON]

I'll go on to another issue. This goes to what my colleague, Chandra, was referring to in terms of the disagreement. There was a very clear disagreement. On page 17, the Auditor General reports that the agency says that administering duties on items valued at less than $200 would result in a net cost to the Canadian government, whereas the Department of Finance then says that increasing the threshold to $200 would have cost the federal government $66 million. This is perplexing because this is a pretty huge gap. On the one hand we have Finance saying if the threshold is increased to $200, it will be a net cost, and on the other hand we have the agency saying that's not the case.

I know the Auditor General has pointed out here that the explanation was that it's a cabinet confidence. I would like to know from the folks at Finance, in what ways did you calculate this amount differently than the agency did?

[Rick Stewart]

I believe the agency has never indicated that there wouldn't be a revenue loss from raising the de minimis threshold rate. The $66-million estimate is the amount of tariff revenue that would be collected on products coming into the country valued at between $20 and $200, which we would no longer be collecting. It's a forgone revenue collection of both customs duties and sales tax. In addition to the federal costs, there are also provincial sales tax revenues that would not be collected if we waived the collection of tax up to $200 from the current $20.

[Shaun Chen, Liberal, Scarborough North, ON]

You're saying that the forgone revenues would total $66 million. We all know that in order to generate revenue, you need to have resources and expenses. I'm still not clear, because it says here on page 17 of the Auditor General's report, at paragraph 2.85, “The Department of Finance Canada informed us that in its analyses, it also considered the Canada Border Services Agency’s administrative costs for collecting revenues and its enforcement capacity.”

[The Chair, Conservative, Kevin Sorenson]

You're going to have to hurry, Mr. Chen.

[Shaun Chen, Liberal, Scarborough North, ON]

What you just said doesn't jibe with what's here in the AG's report. Can you explain?

[Rick Stewart]

What I'm saying is that we indeed consider the costs of administering tax collection. What I mentioned earlier in response to another member is that administrative cost-effectiveness is only one consideration in determining what an appropriate tax level ought to be. There are issues of equity and fairness to the Canadian producers and Canadian retailers, and that tax fairness consideration is an important element that goes into the determination of what an appropriate customs duty de minimis threshold should be. It's more than just about administrative cost.

[Shaun Chen, Liberal, Scarborough North, ON]

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Stewart.

Mr. Christopherson.

[David Christopherson, NDP, Hamilton Centre, ON]

Thank you, Chair.

I have a quick question to follow up on a question my colleague, Mr. Chen, asked about whether or not you demand documentation when you go to upstream suppliers. Do you have the legal right to demand documentation?

[John Ossowski]

With foreign suppliers it's voluntary, but for domestic it would be required.

[David Christopherson, NDP, Hamilton Centre, ON]

You have the legal right to demand it?

[John Ossowski]

Yes.

[David Christopherson, NDP, Hamilton Centre, ON]

Good, thanks.

I want to come back to an issue that I have of limited time, but given how vast the problems are, this really.... You heard all my colleagues. Nobody really knows where to start, it's so bad. Before I go to another issue I want to raise, in case we sort of miss the trees here, I want to ask the Auditor General, of all the findings we've had and the discussions we've had here this morning, are there any priorities that we haven't yet touched on that you'd like to make sure we spend at least a moment focusing on? Sometimes we can get sidetracked on issues.

[Michael Ferguson]

There's been a lot of talk about the gaps we found in the enforcement of the rules and the things that can be done on the supply-managed and the duty relief. We've heard from the CBSA about the types of steps they're taking on that.

The bigger picture on this, again, is needing to stand back and ask if this whole system is actually enforceable. Particularly, I'm thinking of the packages coming in through the mail.

It's great to have a system that says we charge duty on anything over $20, but if that can't be done, if the resources aren't there, and if the effort to actually to do that is such that not every parcel over $20 that should be charged duty is going to be charged duty, then Canadian businesses are going to say, “Wait a minute. This isn't the system we thought we were operating under. Things are coming in worth $100 or $200 and not always being charged duty, and that's not the system we thought we were working under.” Right? There's really very little that the CBSA can do in this case. In some of this, they're being asked to perhaps enforce a system that I don't know they can actually enforce.

The problems we found on the supply-managed, the duty relief, and those types of things are things they can fix. We heard today that they are in the process of trying to fix those. But there are other parts of this system where there has to be a real consideration of whether the system can actually be enforced as it is written on paper. What good is it to have a system where Canadian businesses think there is one system that is going to be enforced, but in actual fact, in some cases, it can't be enforced that way?

[The Chair, Conservative, Kevin Sorenson]

The time is up, but I just want to go from there. Sometimes we put a lot of questions to the department, even back to our Auditor General. Is this something that really should be pointed toward us as legislators?

They've been given this system. To comply 100% is virtually impossible. You have that on one hand, and on the other the political consideration of the consumer, on this side, who is shopping e-commerce. Then you also have our industry or our retailers, who are setting up businesses and trying to succeed. We have that to consider, as well.

How much of this would actually fall into the laps of the legislators, or Parliament itself?

[Michael Ferguson]

Again, there is always a balance in every system.

Parliament has to establish the requirements: what is it that Parliament wants to be controlled at the border, and what are those measures? Once those measures are established, there has to be a way of making sure the organizations that are having to enforce it have the resources to enforce it.

I don't know how many resources it would take for the CBSA, Canada Post, or whoever to make sure there is a reasonable assurance—it's never going to be perfect—that most packages coming across the border, through the mail for example, over $20 that should be charged duty are, in fact, being charged duty.

In establishing a system, there also needs to be appropriate consideration of the resource side of actually enforcing that system. In some of this, my opinion is that there may have been a bit of an unbalance in that. Again, that's not on things like the supply-managed and checking the volumes, because that is something we felt they could actually do and could improve on, and we've heard today that they've made some improvements in that. In terms of some of the other aspects of the system, though, and I'm particularly thinking of the de minimis, there needs to be a consideration of.... It's not good enough to say that this is going to be the system, if that system can't actually be enforced.